I have no idea how they work
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If you get a loan then someone gives you $100 today and you pay them back $110 after a month.
If you get a bond then you give someone $100 today with the promise that they’ll give you back $120 after a month.
Bonds are most commonly bought from the federal government. The federal government will always pay back so it’s a very safe investment, but they often need a lot of money at certain times for things like wars or infrastructure, so they’ll sell bonds to raise money which individuals can buy.
Bonds are pretty simple in theory. Lets say I sold you a bond. You would give me, say, $100 and in exchange I would give you a piece of paper that says “on X date, StupidLemonEater will pay qocktard $100 plus Y% interest.” It’s basically a formalized version of an IOU, except that you could also sell the bond to someone else and then I would have to repay them instead of you.
Most government debt exists in the form of bonds which anyone can buy from the treasury. E.g. when you hear that the US is $30T in debt, most of that debt is to private citizens and companies which own bonds.
One-year I bonds are available at [treasurydirect.gov](https://treasurydirect.gov), and are paying 9.6% interest currently. Hard to beat.
Bonds are a type of loan, typically issues by a large company or government. They function basically as a legally binding IOU note.
The most basic form of bond says “we will pay you $X in Y time”, so something like “we will pay you $100 in 24 months”. Other forms might say “we will pay you $10 per month for 24 months”. The most common form will combine these like “we will pay you $1 per month for 24 months, plus $100 after 24 months”. There are a lot more variations with different payment rules as well, but they get beyond the ELI5 level.
Once the company writes this, they sell them to other people, typically at auction but sometimes at a fixed price that will almost always be less than the total payments they will pay out per the terms. If they auctioned that bond that says “we will pay you $100 in 24 months” they might get $90 for it, which would be roughly a 5% APR.
In almost all cases, the bond itself can be sold to other people, and whoever owns the bond at the time a payment was promised gets the money.
It’s literally a loan to the government.
I buy the bond for $10 and the government promises to pay me back $12 in 1 years time.
It’s a $10 loan with 20% interest.
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