Deep Dive: What Are Bonds and How Do They Work — A Complete Guide for Investors
Bonds are the backbone of global financial markets, yet many investors focus almost exclusively on stocks while overlooking the roughly $130 trillion global bond market. Whether you hold Treasury bonds in a retirement account, own bond mutual funds, or simply want to understand how interest rate movements affect your portfolio, grasping how bonds work is essential to making informed investment decisions. At their core, bonds are loans that investors make to governments, corporations, or municipalities in exchange for regular interest payments and the return of principal at maturity. This straightforward concept underpins everything from U.S. government financing to corporate expansion — and the bond market's sheer size dwarfs the global stock market. With the Federal Reserve having cut rates from 4.33% in mid-2025 to 3.64% in January 2026 and the 10-year Treasury yield currently sitting at 4.08%, understanding how bonds are priced, how yields move, and how different types of bonds fit into a portfolio has never been more relevant. This guide breaks down the mechanics of bonds — from coupon payments and yield calculations to the critical inverse relationship between bond prices and interest rates — and explains how today's yield curve environment shapes opportunities for investors in 2026.