Let's look at the main principles of bonds applicable to both government bonds and corporate bonds.

Bonds are debt instruments, much like loans.

When an investor buys a bonds, they're essentially lending money to the issuer, which could be a government, municipality, or corporation.

In return, the issuer promises to repay the principal amounts on a specific future date known as the maturity dates throughout the life of the bonds.

Investors typically receive interest payments, also referred to as coupon payments at regular intervals.

So what distinguishes a bond from a loan? Well, there are several differences, but the most significant one is liquidity.

Bonds generally offer greater liquidity because they can be bought and sold more easily in the secondary market.

For many bonds, especially those issued by large entities, there's relatively active secondary markets.

This means that if an investor buys a bond with a seven year maturity, they can sell it to another investor before it matures often on any given business day.

This ability to trade bonds allows investors to exit their position and retrieve their capital before the maturity date if needed.

Loans, on the other hand, can also be sold, but the process is typically much more complicated.

The sale of a loan is usually negotiated privately between the two parties, and it often involves more time and higher transaction costs.

This is why loans are rarely traded in secondary markets.

While bonds tend to change hands multiple times before they mature to deepen your understanding of bonds, here are some key terms associated with them.

The issuer, this is the entity borrowing the money.

This could be a government, corporation or any other entity that needs to raise money.

The maturity dates, this is the date at which the bond will be redeemed or when the bond reaches the end of its life, and the issuer is required to repay the principal amount to the bond holder.

The coupon, the rate of interest paid to the bond holder annually or semi-annually.

It's essentially the income and investor earns for holding the bond.

The par value or face value, also referred to as the principle amount or notional.

This is the amount of money repaid to the bond holder at the bond's maturity.

And lastly, the price.

This is the current market value of the bond expressed as a percentage of the face value.

The price can fluctuate due to interest rate movements and other market conditions.