Bonds Article Example | Topics and Well Written Essays - 500 words

Bonds - Article Example As the matter of fact, bonds are viewed as the most secure form of investment though with a relatively low rate of return. In the light of recent crisis, investors became more risk-averse and reliant on these long-term financial instruments though not completely protected from the risk as interest rates are still subject to change. Bond is a long-term financial instrument that is mainly traded by large corporations and a government (Class PPT, 2009)1 for the purpose of raising money (Investopedia, 2009).2 Bonds are also issued by governments in order to provide secure long-term investments of individuals in such institutions as pension funds (Ming, 2009). A borrower (issuer) is obliged to pay principal and interest on a predetermined date (maturity) to an investor (bond holder) (Class PPT, 2009). In contrast to other financial instruments, bond's rate of return is lower due to lower perceived risk of default. However, in case of such an incident, investors still get lower return (Class PPT, 2009). That fact always makes investors cautious in choosing a reliable institution for investment. Moreover, the crisis emanated in March of 2007 made the current financial situation rather volatile and unpredictable. The situation discouraged business lending and stimulated the purchases of governmental Treasury notes (Hi lsenrath, 2009). Current financial situation stimulated investors' demand for greater security of their capital.