Basic Concepts5 分で読めます

What Is a Bond — Lending Money

If a stock is becoming an "owner" of a company, a bond is "lending" money to a company or a country. How does the money you lent come back?

A Bond = a Certificate for Lending Money

A bond is a kind of IOU you receive when you lend money to an "issuer" such as a government, a company, or an institution.

When an issuer needs a large sum, it sells bonds to raise money, and in return promises to "pay a set interest and repay the principal on the promised date."

So, unlike a stock, a bond does not make you an owner of the company; it makes you a "creditor (a lender)" of the company.

A bond = a fixed-income security in which an investor lends money to an issuer. (Source: PIMCO, Britannica Money)

Three Words You Must Know: Principal, Maturity, Issuer

Three words are enough to understand a bond.

Principal (face value) — the amount the issuer promises to return at maturity. Think of it as the "money to be repaid" written on the bond.

Maturity — the date on which you get the principal back. It usually ranges from 1 year up to 30 years.

Issuer — the party that borrows the money. If a country issues it, it's a government bond; if a company issues it, it's a corporate bond. Safety varies greatly depending on who is borrowing.

The interest rate paid each year is called the "coupon." (Source: PIMCO, Bogleheads)

How Does a Bond Return Money?

A bond's return structure is similar to a bank loan.

While you hold it, you receive interest (a coupon) at set intervals (usually annually or semi-annually).

And at maturity, you get the full principal back together with the final interest.

For example, with a bond of 1 million KRW principal, a 5% coupon, and a 3-year maturity, you receive 50,000 KRW in interest each year for 3 years and get the 1-million-KRW principal back after 3 years. Unlike stock dividends, which fluctuate, the flow is set in advance, which is why it's called "fixed income."

Hidden Risks Even in "Safe Bonds"

Bonds are often said to be safer than stocks, but that doesn't mean there is no risk at all.

First, credit risk — if the issuer defaults, you may not receive the principal, let alone the interest. That's why government bonds are safe, and the lower a corporate bond's credit (high-yield), the higher the interest but the greater the risk.

Second, interest rate risk — if market rates rise, the price of already-issued bonds falls. Selling before maturity can result in a loss.

Third, inflation risk — because the interest is fixed, if prices rise sharply, the real value of the interest you receive shrinks.

This article does not recommend any specific bond product. "High interest" is usually a signal of "high risk."

よくある質問

Q. What is the difference between a bond and a deposit?

Both are similar in that you "entrust money and receive interest," but deposits are protected by deposit insurance (100 million KRW from September 2025), whereas a bond can lose principal depending on the issuer's credit and its price rises and falls in the market before maturity. In return, a bond may offer higher interest than a deposit.

Q. Why does a bond's price fall when interest rates rise?

Because newly issued bonds pay higher interest. Existing bonds already issued at low interest become relatively less attractive, so they trade at cheaper prices in the market. This is why bond prices and interest rates move in opposite directions.