What is a bond? A bond is a debt obligation between you and an issuing company or entity. It comes from the saying “My word is my bond that I will pay you back”. Their obligation is to pay you an interest rate or “coupon” while the bond is outstanding. As an investor, it is important to note the credit rating of the bond, because this will mostly disclose how risky the investment is. A bond with a AAA rating is known as the least risky, whereas anything lower than a BBB rating is known as “junk”. Typically junk bonds carry higher interest rates, but they also have a significantly higher risk of defaulting on the bond, and not paying your money back. A good analogy for this is a foreclosure on a mortgage. The bank makes an investment to give a mortgage and they want to avoid foreclosures at all costs. As an investor, that is similar with bonds. You want to avoid investing in bonds defaulting at all costs!