A stock is a share of ownership; a bond is a loan. When you buy a bond, you do not become part-owner of the issuer — you become its lender, with a contract that says how much it will pay you and when. It is the other half of the markets, the one people talk about less.
The three pieces of the contract
Every bond is described by three numbers:
- Face value — the amount the issuer commits to repay at the end. It is the sum lent, often expressed in increments of $1,000.
- The coupon — the interest paid along the way, usually at fixed intervals. A $30-per-year coupon on a $1,000 face value is a 3% coupon rate. That rate is set at issuance and, for a classic bond, never changes again.
- Maturity — the date the loan ends: the issuer repays the face value, and the story stops there.
As long as the issuer honours the contract, whoever holds the bond to maturity receives exactly what was written: the coupons, then the repayment. The surprise never comes from the contract — it comes from the price in between.
The price-rate relationship: a mechanical seesaw
A bond can be resold before maturity, on the market. And its price there obeys a precise mechanic: when rates rise, the price of existing bonds falls — and vice versa.
The mechanism, with round numbers: you hold a $1,000 bond paying a $30 coupon each year. Rates rise, and comparable new bonds now offer $40 a year. Nobody will pay $1,000 to receive $30 when $1,000 elsewhere earns $40: to find a buyer, your bond has to sell for less — enough less that its $30 coupon, measured against the price paid, becomes competitive again. If rates fall, the seesaw tips the other way: your $30 coupon becomes enviable, and the price rises above $1,000.
Two mechanical consequences: the more distant the maturity, the more the price reacts to the same rate moves — there are more years of coupons left to reprice; and at maturity, whatever path the price took, the repayment is still the face value.
Governments and corporations: same contract, different borrower
- Government bonds — federal, provincial — are backed by the state's capacity to raise revenue. Their default risk is generally considered the lowest in the market, and their yield reflects it.
- Corporate bonds generally pay more: the lender bears the risk that the company can no longer pay. The more an issuer's financial health worries the market, the higher the coupon demanded at issuance — the price of credit risk, assessed notably by rating agencies.
In both cases, the bondholder ranks ahead of the shareholder in a bankruptcy — a bondholder is a creditor — though with no guarantee of recovering everything.
Where bonds live in a portfolio
Buying bonds one by one often requires large amounts and direct access to the bond market. That is why, in individual accounts, they mostly live through bond ETFs: exchange-traded funds that hold hundreds of bonds and trade like a stock. Such an ETF pays distributions drawn from the coupons, and its price reflects the same price-rate seesaw as its underlying bonds — continuously, since it trades continuously.
What this changes for your tracking
Prices are not yet shown in the app; they will be at launch.
In Everyfolio, a bond ETF is tracked like any other security: transactions, distributions (recorded as dividends), market value. The useful reading: when such an ETF's value moves, the reflex "the company is doing well or badly" does not apply — most of the time it is the rate mechanic speaking. Same seesaw, never announced in advance.
Informative, general content — not personalized advice. For your situation: your institution or an advisor.