Baziloo Academy Level: Beginner ⏱ 4-minute read

Bonds: lending money and making a living from it

By The Baziloo Editorial Team ·Published on 18 July 2026 at 12.03 pm

A bond is a debt security (a loan agreement): you lend money to a company or a government, which repays you with regular interest payments. It is a less risky investment than shares, but generally offers more modest returns.

🎯 What you’ll learn

Understand that a bond is a loan that you grant
Identify the regular income generated by a bond
Distinguishing between government and corporate bonds
Understanding the main risks associated with bonds

What is a bond?

A bond is a simple contract: you lend money to a borrower (a company, a bank or a government), and that borrower undertakes to repay you on a date agreed in advance, with regular interest payments.

Unlike shares (which make you the owner of a small stake in the company), a bond makes you a creditor: you are a lender, not an owner. The borrower owes you money.

Bonds are traded on the financial markets, just like shares. You can therefore buy and sell them before their maturity date.

How does a bond work?

Here are the three key elements of a bond:

• The principal (or face value): the amount you are lending. For example, 1 000 €.

• The coupon (or interest rate): the percentage of interest you receive each year. For example, 3 % per annum.

• Maturity: the date on which the borrower repays the principal to you. For example, in 5 years’ time.

In practical terms, if you buy a bond from 1 000 € with a coupon of 3 % and a maturity of 5 years, you will receive 30 € each year for 5 years, then 1 000 € at the end. In total, you will have received 1 150 € for an investment of 1 000 €.

The price of the bond may fluctuate before it matures, depending on market conditions. You may be able to sell it for more or less than you paid for it.

Government or corporate bonds?

Government bonds (also known as Treasury bonds) are issued by governments. They are generally safer, as governments rarely have difficulty repaying their debts. On the other hand, their returns are modest.

Corporate bonds are issued by private companies. They often offer higher returns, but the risk of default is greater: if the company goes bankrupt, you could lose your money.

In France and across Europe, short-term government bonds (with a maturity of less than two years) are regarded as very safe.

What are the risks to consider before investing?

The main risk is credit risk: if the borrower is unable to repay you, you will lose your money. That is why government bonds are safer than corporate bonds.

There is also an interest rate risk: if interest rates rise after you have bought the bond, its market value will fall. You may have to sell it for less than you paid for it.

Finally, inflation (rising prices) can reduce the purchasing power of your income. If you earn 30 € a year but inflation is 4 %, your money is worth less.

Bonds never guarantee a return higher than that advertised: you cannot ‘earn more’ if the borrower makes a good profit.

📖 Definitions

Obligation: A debt instrument representing a loan: you lend money to a borrower, who repays it to you with interest on a specified date.
Voucher: The annual interest rate paid by the borrower to the bondholder. Expressed as a percentage of the principal.
Due date: The date on which the borrower repays the principal (the face value) to the bondholder.
Credit risk: The risk that the borrower will be unable to repay their debt by the agreed date.
Nominal value: The initial amount lent through the bond, on which interest is calculated. Also known as the capital or principal.

💡 A practical example

You purchase a French government bond with a face value of 1 000 €, a coupon of 2 % and a maturity of 3 years. Each year, you receive 20 € (2 % from 1 000 €). After 3 years, you receive the final 20 € plus the 1 000 € of the principal. You will have received a total of 1 060 € for an investment of 1 000 €, representing a gain of 60 €.

⚠️ Risks you need to be aware of

Risk of non-repayment: if the borrower goes bankrupt, you may lose some or all of your money.
Interest rate risk: if interest rates rise after you have purchased the bond, its resale value will fall.
Risk of inflation: your regular income loses purchasing power if prices rise.
Limited returns: bonds generally offer modest returns compared with shares.
Liquidity risk: some bonds are difficult to sell quickly on the market.

✅ Key points to remember

A bond is a loan: you lend money and receive regular interest payments.
You receive a coupon each year until maturity, followed by the repayment of the principal.
Government bonds are safer but offer a lower return than corporate bonds.
The main risk is that the borrower may not be able to repay you.
The value of the bond may fluctuate before it matures, depending on market interest rates.

🧠 Test your knowledge

1. You buy a bond from 1 000 € with a coupon of 4 % per annum. How much do you receive each year?

2. What is the main difference between a share and a bond?

Fancy taking it a step further?

Analysise this security in detail on Baziloo — B-Score, risk metrics, price history — and track it in your portfolio.

📊 Explore the values on Baziloo → Ideas to explore All articles

Sources

AMF — Investor Zone (Autorité des marchés financiers) — amf-france.org