Bonds are fixed-income securities that allow an issuer to borrow money in return for interest payments throughout the life cycle of the bond. The amount borrowed is payable by the issuer when the bond in question matures. Bonds are issued by a variety of entities, including governments, corporations and local authorities. The desirability of a bond will fluctuate throughout its life as interest rates change. If a bond is paying out more than the prevailing interest rate, investors will flock to the bond in question, driving up its price until its effective rate is on a par with the prevailing interest rate. If, on the other hand, interests rates rise higher than the bond is paying out, bond holders will sell the bond, thus driving down its price until again its interest payouts are on a par with the prevailing interest rate.
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