Bonds & Fixed Income
A bond is a type of debt investment. When you buy a bond, you are lending money to a government, company or other issuer. In return, the issuer may pay interest and normally agrees to repay the bond’s principal at maturity — subject to being able to meet its obligations.
Income
Bonds may pay regular coupon payments.
Maturity
Individual bonds normally have a defined maturity date.
Capital at risk
Bond prices can fall and issuers can fail to repay.
Educational information only — not personalised advice. Capital is at risk.
Example
A simple illustrative example can make the key terms easier to understand.
Illustrative example — not a current bond offer
*Assuming the issuer meets its obligations. The market value before maturity can be higher or lower than £1,000.
Mechanics
A government, company or other organisation issues a bond to raise funds.
You pay the purchase price and become a creditor of the issuer.
Interest is paid according to the bond’s terms, assuming the issuer can make the payments.
The principal is normally due for repayment at maturity, subject to the issuer meeting its obligations.
Key terms
The amount used to calculate coupon payments and normally due for repayment at maturity.
The interest rate stated in the bond’s terms.
The price investors are currently willing to pay for the bond.
A measure of return that reflects the price being paid for the bond.
Income measures
The contractual interest payment specified when the bond is issued.
4% coupon on £1,000 face value = £40 a year
A return measure that depends partly on the price you pay for the bond.
A bond can continue paying the same coupon while its market price — and therefore its yield — changes.
Market prices
Investors compare the income available from existing bonds with newly issued bonds. This can change the price investors are willing to pay.
Market interest rates rise
Prices of existing fixed-rate bonds generally fall
Market interest rates fall
Prices of existing fixed-rate bonds generally rise
Lifecycle
The bond’s market price can rise or fall.
The issuer normally repays the principal according to the bond’s terms.
The bond ends once the contractual obligations have been completed.
Repayment depends on the issuer meeting its obligations. A maturity date is not a guarantee against default.
Interest-rate sensitivity
The date when an individual bond is due to repay principal.
A measure commonly used to understand how sensitive a bond or bond portfolio may be to changes in interest rates.
Bond types
UK government bonds where payments are linked to inflation according to their terms.
Learn about index-linked giltsGovernment debt issued outside the UK, potentially introducing currency and different sovereign risks.
Risk
Individual bonds can lose money. These risks can interact rather than acting alone.
Existing bond prices can fall when market interest rates rise.
The issuer may become unable to make interest payments or repay principal.
Fixed payments may lose purchasing power if inflation rises.
Some bonds may be difficult to sell quickly at an attractive price.
Changes in exchange rates can affect returns from bonds denominated in another currency.
Compare structures
Neither structure is automatically better. They differ in ownership, maturity behaviour and diversification.
| Feature | Individual bond | Bond fund / ETF |
|---|---|---|
| What you own | A specific bond | Units/shares in a portfolio |
| Maturity | Usually has a defined maturity | Fund itself normally has no single maturity |
| Portfolio | One issuer/security | Usually many bonds |
| Diversification | Limited individually | Usually broader |
| Market value | Can move before maturity | NAV/price moves continuously |
| Principal repayment | Normally due at maturity if issuer meets obligations | No single maturity-date repayment of your original investment |
| Research | Security-specific | Fund/portfolio-specific |
What you own
Maturity
Portfolio
Diversification
Market value
Principal repayment
Research
Access
Availability depends on the bond. Retail investors may be able to buy certain bonds through an investment platform or broker, either when a bond is issued or later in the secondary market.
Buying when a bond is first offered to investors.
Buying an existing bond from another market participant.
An alternative way to obtain diversified fixed-income exposure without selecting individual bonds.
Availability varies. Not every bond is practically accessible to retail investors through every platform or broker.
Checklist
Use this as a general checklist — not personalised investment advice.
Credit quality
Credit ratings are opinions about an issuer’s ability to meet its financial obligations. Higher-rated bonds are generally considered to have lower credit risk than lower-rated bonds, but ratings can change and do not guarantee repayment.
Generally higher credit quality according to rating-agency classifications.
Generally higher credit risk and potentially higher yields.
UK wrappers
Some eligible bonds and fixed-income investments can be held within tax-advantaged wrappers, depending on the investment and platform.
Tax treatment depends on your circumstances and rules can change.
FAQs
Educational answers on bond mechanics and risk — not personalised advice.
Related
Educational information only. Not personalised advice. Capital at risk where you invest.
Last reviewed: 26 August 2026
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