A bond is a loan you make to a borrower — the US government, a city, or a corporation. They pay you interest (the "coupon") on a schedule and return your principal at maturity.

The three numbers that matter

• Coupon rate. The annual interest rate stated on the bond. Fixed for the life of most bonds.
• Yield. The actual return based on current market price. If you buy below par, yield > coupon; if above par, yield < coupon.
• Duration. Sensitivity to interest-rate changes. A duration of 5 means a 1% rate rise drops the bond ~5%.

Major categories

• Treasuries — Issued by the US government. Considered risk-free for credit purposes.
• Municipal bonds — Issued by states/cities. Federal-tax-free, sometimes state-tax-free.
• Corporate bonds — Issued by companies. Higher yields than Treasuries; rated AAA down through junk (BB and below).
• Mortgage-backed — Backed by a pool of home mortgages. Yield varies with prepayment speed.