A bond is a debt instrument, in which the authorised issuer owes the bond holders a debt, and depending on the terms of the bond is obliged to pay interest (the coupon) and/or repay the principal at a later date, termed maturity. (It is a formal contract to repay borrowed money with an interest at fixed intervals). When you purchase a bond, you are lending money to the issuer, which may be a government, corporation, federal agency, or other entity. In return for the loan, the issuer promises to pay a specified rate of interest during the life of the bond, and also to repay the face value of the bond or the principal when it "matures" or becomes due.