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Bonds are a type of debt security that pays regular interest, and they can be issued by governments, companies or other entities. The most common types of bonds are government-issued Treasuries and corporate bonds. As the issuer of the bond, you agree to pay back your loan with interest on a predetermined schedule. When you buy an individual bond, you become its owner until it matures or is bought back by the issuer before then.

Bonds have some advantages over other investments: They offer greater liquidity than stocks; they usually provide higher yields than savings accounts; and they often provide income that's exempt from taxes if held in municipal securities (subject to certain conditions.) It’s important to note that there is no guarantee for the payment of interest or principal by the issuer.

Bonds are sold in an auction-style format, with buyers placing bids according to their desire for the security and the price they want to pay. Bids determine the interest rate and how much will be paid back when a bond matures. The U.S. Treasury Department sells bonds at regular weekly auctions, but many bonds are traded on exchanges just like stocks. Because they're not issued directly by the issuer, these trades take place at prices that fluctuate until an agreement is reached.

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