How — Does Buying Bonds Work

: Issued by states or cities. Interest is usually federal tax-exempt and often state tax-exempt if you live in the issuing state.

: Most bonds pay fixed interest twice a year. For a $1,000 bond with a 5% coupon, you receive $50 annually until it matures. how does buying bonds work

Buying bonds is essentially acting as a lender to a government or corporation. In exchange for your "loan," the issuer promises to pay you regular interest (the coupon) and return your original investment (the principal) on a set date (maturity). : Issued by states or cities

: Issued by companies. These offer higher yields but carry more risk if the company cannot pay its debts. 3. How to Buy Bonds You can purchase bonds through three main channels: What is a Bond and How do they Work? - Vanguard For a $1,000 bond with a 5% coupon,

The type of bond you buy determines your risk and potential tax benefits:

As of April 2026, the bond market is in a "stubborn equilibrium," where nominal yields remain attractive—with the 10-year Treasury yield recently hovering around 4.3%—even as expectations for interest rate cuts have moderated. 1. How Bonds Generate Return There are two primary ways you make money with bonds: