: Most bonds pay fixed interest twice a year. For a $1,000 bond with a 5% coupon, you receive $50 annually until it matures.
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: how does buying bonds work
: Backed by the government and considered the safest. Interest is exempt from state and local taxes. : Most bonds pay fixed interest twice a year
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). Buying bonds is essentially acting as a lender
: 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
The type of bond you buy determines your risk and potential tax benefits: