Access to bonds was historically limited to banks and institutional players. High minimum investments, complex infrastructure, and a lack of transparency kept everyday investors on the sidelines. This is beginning to change, as regulated investment platforms expand access to the bond market and lower traditional entry barriers. As investing becomes more accessible, understanding how these instruments work puts you in a better position to act on new opportunities.
The global bond market is worth approximately €133 trillion, placing it at the core of the global financial system.¹ Governments and companies use bonds to raise capital, and investors use them to generate income and manage risk. Today, bonds remain the most accessible entry point into the fixed income asset class for everyday investors.
In this guide to bonds
You will find bonds explained in clear and practical terms. We explore how bonds work, how returns are generated, the different types of bonds available, how they compare to stocks, and what risks to weigh before investing in bonds.
Because broader access only creates opportunity when it is matched with informed decision-making.
Bonds explained: how they work
When a government needs to fund a new project, or a company wants to expand into a new market, they rarely have the capital sitting ready. They need to raise it. One of the most common ways to do that is by issuing bonds.
At their core, bonds explained simply are structured loans. Instead of borrowing from a single bank, the issuer borrows from potentially thousands of investors at once, each buying a portion of the total amount required. In return, the issuer makes a legal commitment to pay regular interest over an agreed period and to return the full amount borrowed at the end.
For the issuer, it is a way to raise large-scale capital without giving up ownership or control. For the investor, it is a potential contractual income stream with a defined start, a defined end, and a defined return, if the issuer meets its obligations.
Anatomy of a bond
- Issuer: A government, company, or institution raising capital.
- Face value: The amount the issuer agrees to repay at maturity.
- Coupon: The interest rate paid to the investor at regular intervals, usually annually or semiannually.
- Maturity date: The date the loan ends and the face value is returned.
- Price: What an investor actually pays to buy the bond, which can differ from the face value depending on market conditions at the time of purchase.
As an example, take a bond with a face value of €1,000, a 6% annual coupon, and a 3-year maturity. The investor pays €1,000 today and receives €60 in interest each year. At maturity, the €1,000 is returned. The total return over the period is €180 in interest payments, plus the original capital at maturity.
Bonds vs fixed income: are they the same thing?
For most bonds, predictability is the defining characteristic of a fixed income investment, with coupon payments set at a fixed rate from the moment of issuance. For fixed-rate bonds, the payment schedule is contractually defined from the moment a bond is issued, which sets it apart from equities, where returns depend on company performance and market sentiment.
Fixed income is a broad investment category that includes any instrument generating regular, predictable payments. Bonds are the most widely used type, but the category also includes money market instruments, treasury bills, and certain structured products.
When comparing bonds vs fixed income, the key distinction is that all bonds are fixed income, but not all fixed income instruments are bonds.
Comparing the different types of bonds
Not all bonds are the same. They vary by who issues them, how they rank if something goes wrong, and how they’re structured.
Government vs corporate bonds
Government bonds are issued by national governments to fund public spending. When Germany issues a Bund, France an OAT, or Italy a BTP, they are borrowing from investors to finance everything from infrastructure to national deficits.
Because governments can raise taxes and, in most cases, have significant economic resources behind them, government bonds are regarded as lower risk than other bond types.
Corporate bonds work on the same principle but the borrower is a company rather than a state. When Volkswagen needs to raise capital for new production lines, or Enel wants to finance renewable energy projects, they can issue bonds to investors rather than relying solely on bank financing.
Because companies carry more risk of default than stable governments, corporate bonds tend to offer higher interest rates to compensate. The comparison between government vs corporate bonds is ultimately one of risk versus return, and how much certainty you want versus how much yield you are prepared to accept less of.
Secured vs unsecured bonds
When a bond is secured, it is backed by specific assets. If the issuer defaults, those assets can be sold to repay bondholders. One of the most established examples in Europe is the German Pfandbrief, a covered bond backed by mortgage loans or public sector assets. Secured bonds are among the largest and most liquid segments of the European fixed income investments market precisely because of this structural protection.
Unsecured bonds carry no such backing. Investors are relying entirely on the issuer’s creditworthiness and willingness to repay. To compensate for that additional risk, unsecured bonds offer higher yields. The difference between secured vs unsecured bonds becomes most visible in a default scenario. Secured bondholders have a claim on specific assets, while unsecured bondholders join a longer queue.
A note on seniority
When a company defaults, where do you stand? The answer depends on seniority. When an issuer runs into financial difficulty, not all investors are treated equally. Bondholders have a legal claim on assets before shareholders, but within bondholders themselves there is a hierarchy. Senior bondholders are repaid first. Subordinated bondholders come next. Shareholders, if anything remains, are last.
In practice this means a senior bondholder in a company like a major European bank has a meaningfully different risk profile to a subordinated bondholder in the same institution. Same issuer, same sector, very different position in the repayment queue. A senior bondholder is an investor who owns a senior bond, meaning it’s not about the person investing; it’s about the type of bond issued and invested in.
For a deeper look at how these different bond types work and how investors may incorporate them into their investments, learn more about investing in bonds.
How bonds and stocks interact within a portfolio
Bonds sit lower on the risk spectrum than stocks, but lower risk does not mean no risk. The distinction matters. Investing in bonds vs stocks involves different trade-offs covering several factors.
| Volatility | Stock prices can rise or fall dramatically in short periods. Bond prices are more stable, particularly shorter-dated government bonds. This is what makes bonds a stabilizing force in a portfolio when stock markets fall. |
| Income predictability | Many bonds pay a fixed coupon on a defined schedule. Stock dividends can be cut or cancelled. If predictable income is a priority, bonds have a structural advantage. |
| Return potential | Over long time horizons, stocks have delivered higher returns than bonds. Bonds tend to be the slower, more stable part of a portfolio and generally do not produce the kind of capital gains that equities can. |
| Portfolio interaction | Historically, bonds and stocks have shown a low or negative correlation, meaning when stocks fall, bonds often hold their value or rise. Adding bonds to a stock-heavy portfolio can reduce overall volatility without necessarily sacrificing much return. |
A simple way to think about investing in bonds vs stocks: stocks are the engine of long-term growth in a portfolio and bonds are the shock absorbers. Most long-term investors benefit from having both.
What are the main risks of investing in bonds?
Bonds carry real risks, and it is important to understand them clearly before investing.
Credit risk
When an issuer cannot meet its obligations, whether that means missing an interest payment or failing to repay the principal at maturity, that is credit risk. It is sometimes called default risk. Higher-yielding bonds generally carry higher credit risk, and checking an issuer’s credit rating is one way to assess how likely that scenario is.
Interest rate risk
Bond prices and interest rates move in opposite directions. When rates rise, the market price of existing bonds falls, because newly issued bonds offer higher coupons and become more attractive by comparison.
For investors holding a bond to maturity this matters less, as the face value is returned regardless of price movements along the way. For those who need to sell before maturity, it can mean receiving less than they originally paid.
Bond liquidity risk
Bond liquidity risk refers to how easily a bond can be bought or sold in the market. Some bonds, particularly corporate bonds from smaller issuers, trade infrequently. An early exit may mean waiting longer than expected for a buyer, or accepting a lower price than anticipated. It is a commonly underestimated bond risk among first-time investors, and worth factoring in before committing capital for a fixed period.
Managing these bond risks often comes down to diversification, choosing the right maturity length for your goals, and understanding who you are lending to.
How beginners can access the bond market
The bond market has not always been accessible to retail investors. Minimum investment sizes for high-yield corporate bonds exceeded €10,000 per bond, many were only available through private placements, and the infrastructure required to access them was built for institutions, not individuals.
Today, regulated investment platforms have lowered the barriers that kept retail investors on the sidelines. It is now possible to invest in individual bonds or automated bond portfolios with much smaller amounts and greater transparency than traditional channels allowed.
Mintos is a regulated investment platform licensed by Latvijas Banka that gives retail investors access to high-yield corporate bonds.
✓ Invest your way: Hand-pick individual bonds or, if suitable, let an automated High-Yield Bonds portfolio do the work for you
✓ Fixed income from €50: You could start earning scheduled returns with a low minimum investment
✓ Bonds from 40+ different issuers available: Diversify across industries and companies
✓ Flexible access: Sell on the Secondary Market or request a cash out of your High-Yield Bonds portfolio at any time, subject to demand
The bond market is more accessible than it has ever been. Discover how to get started on Mintos.
Frequently asked questions about bonds
How do bonds generate returns?
Bonds can generate returns in two main ways: through regular coupon payments received while holding the bond, and through the difference between the purchase price and the face value repaid at maturity. If a bond is bought below face value, this difference adds to the total return. If bought above face value, it reduces it. For most bonds held to maturity, coupon payments are the primary source of return
Are government bonds lower risk than corporate bonds?
In most cases, yes. Governments have tools like taxation to meet their obligations, making government bonds less volatile. Corporate bonds carry more credit risk but typically offer higher yields as compensation. Understanding this distinction is a key part of investing in bonds.
What is the difference between secured and unsecured bonds?
Secured bonds are backed by specific assets that can be sold to repay investors if the issuer defaults. Unsecured bonds rely on the issuer’s creditworthiness alone and typically offer higher yields to compensate for the additional bond risks involved.
What happens when a bond matures?
The issuer repays the face value to the bondholder. Any coupon payments received along the way are kept. The investment is complete. This is one of the most important mechanics to understand when investing in bonds.
What is bond liquidity risk?
Bond liquidity risk is the risk that a bond cannot be sold quickly or at a fair price before maturity. Less frequently traded bonds, particularly from smaller issuers, carry higher bond liquidity risk and this is one of the key bond risks to factor in before committing capital.
How do interest rates affect bonds?
Bond prices and interest rates move in opposite directions. When rates rise, existing bond prices fall. When rates fall, existing bonds become more valuable. This is a fundamental dynamic of the bond market and matters most for investors who may need to sell before maturity.
Can beginners invest in bonds?
Yes. While the bond market was once difficult for retail investors to access directly, regulated investment platforms have made it much more accessible. Many platforms allow you to start with relatively modest amounts and offer tools to help you understand what you’re investing in.
Developed by the Mintos Content Team, making investment knowledge accessible for everyday investors across Europe.
Disclaimer:
This is a marketing communication and in no way should be viewed as investment research, advice, or recommendation to invest. The value of your investment can go up as well as down. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.
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1 Mordor Intelligence, BOND MARKET SIZE & SHARE ANALYSIS – GROWTH TRENDS AND FORECAST (2026 – 2031). Available at: mordorintelligence.com/industry-reports/bond-market
