Overview

• Bonds are loans to governments or companies that pay a fixed coupon and return principal at maturity, with coupon levels set by market rates, issuer quality, and term, according to the German banking association.
• The nominal value determines interest payments and final repayment, while the market price fluctuates on exchanges and moves inversely to yield.
• Total return comes from coupon income plus price changes, so a purchase below 100 percent boosts return if the bond later repays at par.
• Consumer testers at Stiftung Warentest recommend bond funds or ETFs for most retail buyers due to diversification, easier trading, and high minimum denominations on many individual issues.
• Credit ratings run from AAA to D, Germany holds AAA, and outsized coupons can signal higher default risk as illustrated by Venezuela’s long-dated bond trading near 20 percent of face value.