Definition
A loan you make to a government or company that pays interest and returns the face value at maturity, if the issuer does not default.
What it means
A bond is a debt security. The issuer, such as the U.S. Treasury, a city or a corporation, borrows money from investors and usually pays fixed interest, called the coupon, until the bond matures, then repays the face value. Bond prices move in the opposite direction of interest rates: when market rates rise, existing bonds with lower rates lose value if sold before maturity. Bonds also carry credit risk, the chance the issuer cannot pay, which is why ratings and yields differ. Interest on U.S. Treasury bonds is exempt from state and local income tax, and interest on many municipal bonds is exempt from federal income tax. Bonds are often used to balance the risk of stocks in a portfolio.
Example
A $1,000 bond with a 4% coupon pays $40 a year, usually $20 every six months, and returns $1,000 at maturity if the issuer pays as promised.
Illustrative numbers only. Your situation will differ.