What are bonds primarily used for?

Bonds are primarily used as long-term debt instruments issued to multiple investors. This means that when an entity, such as a corporation or government, needs to raise capital, it can issue bonds to borrow money from a variety of investors. Each bond represents a loan made by the investor to the issuer, which promises to pay back the principal amount—often referred to as the face value—at a specified maturity date, along with periodic interest payments known as coupon payments.

Investors are attracted to bonds because they provide a predictable income stream and are generally considered lower risk compared to stocks. Since bonds can be issued in large amounts and sold to many different investors, they play a crucial role in the financial markets by helping issuers access needed capital while giving investors an avenue for income generation. This structure supports the broader economy, allowing companies and governments to fund projects and initiatives that can lead to growth and development over time.