What is a bond? Yield, price, government and corporate bonds

A bond is a loan in tradable form. The issuer, a government or a company, borrows money from investors, pays interest called the coupon, and repays the face value on a set maturity date.

Yield is the return you earn. The coupon yield is the yearly coupon divided by face value, while yield to maturity also counts the gap between what you paid and what you get back.

Bonds already issued keep their fixed coupon. If new bonds start paying more because interest rates rose, older bonds become less attractive and their price falls until their yield matches the market. When rates fall, the opposite happens.

Rates up → existing bond prices fall → yield rises
Rates down → existing bond prices rise → yield falls

Longer maturities react more strongly, which is why long bonds can lose value quickly when rates jump. Holding to maturity returns the face value if the issuer pays.

Government bonds are backed by the state's ability to tax and borrow, so they are usually the safest in their own currency. Corporate bonds pay a higher yield because the company can default.

A Eurobond is a bond issued in a currency other than the issuer's home currency, such as a Turkish issuer selling dollar or euro bonds. Its holder is exposed to the exchange rate and to the issuer's ability to earn that currency.

The main risks are interest rate risk, credit risk, inflation eroding fixed coupons, and currency risk for foreign bonds. A high yield often signals that the market sees higher risk.

A common mistake is calling bonds risk-free. Compare yield with inflation and check the issuer's credit quality before buying.