A bond transaction involves two primary participants: the issuer and the investor (sometimes referred to as the bondholder). The issuer is the entity borrowing the funds, which can be a corporation, government, or government agency. The investor is the entity lending the funds by purchasing the bond. For example, if a corporation issues a bond to raise capital, the corporation is the issuer, and anyone who buys that bond is an investor.
This clear delineation of roles ensures a structured and transparent financial agreement. It facilitates accountability on both sides. The issuer is obligated to make interest payments and repay the principal at maturity, while the investor provides capital and assumes the credit risk of the issuer. Historically, bonds have played a crucial role in financing large-scale projects and facilitating economic growth, providing a mechanism for entities to raise capital and for individuals and institutions to invest in diverse fixed-income securities.
