In the capital markets, a bond is a security that gives its owner the right to receive an amount of money stated on the face of the bond certificate (the face value) at a specified time in the future (the redemption date) and often also to receive specified payments of interest (coupons) at specified dates (coupon dates) throughout the life of the bond. The amount of the coupon when expressed as a percentage of the face value of the bond is termed the coupon rate.

The yield or redemption yield or internal rate of return of a bond is the rate of interest that, when used in the discounting process, sets the sum of all the present values of cash-flows incurred in the process of owning that bond (including the purchase price) to zero. As the yield of a bond falls, the price rises (and vice versa). This is a result of the fact that present values increase as discount rates fall and vice versa. Whilst the redemption yield of a bond can change, the coupon rate cannot. Redemption yield should not be confused with running yield, the latter being a figure that is calculated by dividing the coupon rate into the percentage market price of a bond.

Some bonds do not pay coupons during their life. Such bonds are called zero-coupon bonds. The return to the bond holder is then simply the difference between the purchase price and the redemption value over the bond's life. The price of such a bond expressed as a percentage of the redemption value produces the zero-coupon discount factor for the bond's redemption date. A zero-coupon yield curve can therefore be constructed by examining the yields on zero-coupon bonds for different redemption dates.

Some bonds are convertible into other bonds on a specified date or between a specified range of dates. For instance, some government bonds can be converted into other government bonds on conversion dates and are therefore termed conversion stock. Some corporate bonds allow convertibility into the equity of that corporation on specified conversion dates.

Bonds may be 'callable' or 'term'. Callable bonds can be redeemed at 100% of face value, otherwise known as par on the call date or dates, by the issuer and at the issuer preference. Term bonds may only be redeemed on a single redemption date.

When a bond is purchased, the total price paid is called the dirty price. The dirty price equals the bond's clean price plus accrued interest, this latter amount being the interest due (but so far unpaid) to the bond holder since the last coupon payment date. Accrued interest is calculated using the coupon rate and the appropriate bond market day and year count convention. The market price quoted for a bond is always the clean price.

Bearer bonds are owned by the bearer of the bond certificate. Registered bonds are owned by the individual or entity listed in the register of the bond issuer (or the issuer's trustee). Loosing a bearer bond is a serious matter because often no other evidence of ownership exists.

Some bond issuers agree to establish sinking funds, these being funds into which the issuer makes regular payments throughout the life of a bond so as to provide greater assurance to bond holders that repayment will be possible according to the schedule agreed in the bond terms. Sometimes, issuers will enter into covenants that prevent the issuer from incurring further debts, or debts of a more senior nature, that may reduce the issuer's ability to make repayments on previously issued bonds.