Võlakirjadesse

Võlakirjadesse, meaning bonds in Estonian, represent a type of debt instrument. When an investor buys a bond, they are essentially lending money to the issuer, which can be a government, municipality, or corporation. In return for this loan, the issuer promises to pay the bondholder a predetermined amount of interest, known as a coupon payment, over a specified period. At the end of this period, known as the maturity date, the issuer repays the principal amount of the loan to the bondholder.

Bonds are generally considered less risky than stocks, although the level of risk can vary significantly depending on the issuer's creditworthiness. Government bonds from stable economies are typically seen as very safe, while corporate bonds can range from low-risk investment-grade bonds to higher-risk, high-yield (or junk) bonds. The price of a bond in the secondary market can fluctuate based on prevailing interest rates and changes in the issuer's financial health. If interest rates rise, existing bonds with lower coupon rates become less attractive, and their prices tend to fall. Conversely, if interest rates fall, existing bonds with higher coupon rates become more attractive, and their prices tend to rise.

Investors purchase võlakirjadesse for various reasons, including generating a steady stream of income through coupon payments and preserving capital. They can be an important component of a diversified investment portfolio, helping to balance risk and return. The bond market is a significant part of the global financial system, facilitating borrowing and investment for entities of all sizes.