What is a Bond?
Bond
Forex Trading Glossary
Quick Answer: A bond is a debt security whose yield influences currency values through interest-rate expectations and capital flows.
What is a Bond?
A bond is a debt instrument issued by governments or corporations to raise capital. Forex traders watch bond yields because they influence interest-rate expectations and cross-border capital flows.
Bond Basics
- Coupon: The periodic interest payment.
- Yield: The investor's return relative to price.
- Maturity: The date principal is repaid.
- Credit risk: Determines the spread over risk-free benchmarks.
FX Connection
Rising yields usually attract foreign capital and support the domestic currency, while falling yields can pressure it.
Trader Applications
- Rate differentials: Compare U.S. Treasuries with German Bunds when trading EUR/USD.
- Risk appetite: Flight to quality pushes investors into top-tier government bonds.
- Carry trades: Yield spreads justify long positions in higher-yielding currencies.
- Curve signals: An inverted yield curve may foreshadow recession and currency weakness.
Related Terms
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