Definitions 
Bonds are a certificate of a debt on which the issuer (businesses, organisations, governmental bodies) promises to pay the holder a specified amount of interest for a specified length of time, and to repay the loan on its maturity.
Issued bonds are listed as liabilities on an organisations balance sheet.
Bonds and Risk
Although bonds are generally considered less risky than shares, there value can also change over time. The value of bonds generally fluctuates depending on the interest rate environment. Broadly speaking, if interest rates (or more realistically interest rate expectation) rise, the value of bonds fall and visa versa.
Examples: Government Bonds
- US Treasuries are issued by the Bureau of the Public Debt
- Bunds are bonds issued by the German Finance Agency
- Gilts are bonds issued by the UK Debt Management Office
Bonds are affected by confidence
At issuance the interest rate associated with a bond is dependant on the interest rate environment as well as the market's confidence in its ability to pay the loan back. Agencies such as standard and poor’s guide the market by rating the financial stability of organisations.
For example, during the first 5 years of the EURO currency, the interest rate associated with German Bunds was less that that of other EURO member countries such as Belgium, Italy, etc.. due investor's confidence the the ability and willingness of the German government to make good on their promise to pay back the loan.
