Bonds are long-term debt obligations issued in $1,000 or $5,000 denominations by companies, governments (including the U.S. Treasury), municipalities, or federal agencies. The interest paid on these loans -- the coupon or coupon rate -- depends upon the amount of risk assumed by the buyer, the loan's backing, and the overall economic climate at the time of issuance.
The range of rates offered at any given time is determined in relation to benchmark interest rates set by the U.S. Federal Reserve. However, from the date of issuance, a bond's rate of interest remains fixed until maturity. While the prime interest rate may greatly fluctuate over the term of the bond, the rate of interest on the bond remains the same, providing a sure, steady source of income.
The term, repayment schedule, and security of bonds vary widely depending upon the financial needs of the issuer and the bond's intended use, as well as the type of issuance.