The government simply pays the owner of the bond a certain amount as interest at regular intervals, as defined in the terms of the bond. For this reason, it is called a ‘fixed income’ instrument because, in theory, the income in bonds comes only from the interest payment that the government makes to the owner. It is also called a ‘debt’ instrument because, after all, the government is in the bond owner’s debt. However, in practice, bond investors get an additional source of income besides the fixed interest. This happens because of the secondary market, where the price of the bond could sell
...more