Glossary · Rates & Instruments
Bond
A fixed-income instrument representing a loan made by an investor to a borrower, typically a government or corporation. The borrower pays periodic interest and repays the principal at maturity.
01—What is Bond?
The definition — and what it means in practice.
A bond is a fixed-income security that represents a loan from investors to a borrower, usually a government or a company. In return, the borrower commits to pay interest at set intervals (the coupon) and to repay the original amount borrowed (the principal or face value) on a stated maturity date. Bonds may trade in the market, so their prices can move up and down.
Bonds matter because they can provide more predictable cashflows than many shares, but they are not risk-free. Your return depends on the coupon, the price you pay, and whether the issuer pays on time. Bond prices typically fall when market interest rates rise, and they can fall if the issuer’s credit quality deteriorates. Liquidity also matters: some bonds can be harder to sell quickly.
If you buy a Rs 1,000 bond that pays Rs 100 a year, you receive the interest and then get Rs 1,000 back at maturity (if the issuer repays).
- A bond is a loan: coupon payments during the term and principal repayment at maturity.
- Bond prices move inversely to interest rates; rising rates usually pressure prices.
- Credit risk matters: issuer default or delayed payments can reduce returns.
- Your realised return depends on purchase price and holding period, not just the coupon rate.
- Liquidity varies; some bonds may be difficult to sell quickly at a fair price.
02—How bond works on the PSX
The Pakistan-specific rules, conventions, and numbers.
Pakistani investors often compare bonds with other fixed-income options such as Treasury Bills (3/6/12-month tenors) and Pakistan Investment Bonds (3–30 years). Market interest-rate expectations are commonly discussed using KIBOR (Karachi Interbank Offered Rate), which is published each business day under State Bank of Pakistan oversight. These reference rates help investors think about how attractive a bond’s coupon is versus prevailing rates.
You may encounter bonds alongside equities while tracking the Pakistan Stock Exchange (PSX), which is regulated by the Securities and Exchange Commission of Pakistan (SECP). Even if a bond is not traded like an ordinary listed share, the practical investor questions are similar: price, yield, credit risk, and the ability to exit. Any trades executed through the exchange ecosystem settle through the National Clearing Company of Pakistan Limited (NCCPL), with securities held electronically at the Central Depository Company (CDC), and settlement is T+1 (one business day).
03—Common misconceptions
Where investors most often get this wrong.
A bond is always safer than shares.
Bonds can still lose value if interest rates rise, the issuer’s credit quality worsens, or liquidity is thin. Safety depends on the issuer and the terms.
If the coupon is fixed, the bond price never changes.
Coupons can be fixed while the market price moves daily as investors reprice the bond based on interest rates, credit risk and time to maturity.
Holding a bond guarantees profit.
Returns depend on the price paid, fees, and whether the issuer pays as promised. Defaults and forced selling before maturity can lead to losses.
04—Using bond on BSL
Where this term shows up across the platform — with live data.
- Learn the building blocks of debt markets in our glossary.
- Compare rate-sensitive terms like KIBOR when thinking about fixed-income pricing.
- Understand bond-specific cashflows such as coupon rate.
- Explore how fixed-income differs from shares via fixed income.
05—Frequently asked questions
What investors ask about bond on the PSX.
Frequently Asked Questions
A bond is a fixed-income security representing a loan to a government or company. It pays periodic interest (coupon) and repays principal at maturity. Its market price can change with interest rates and perceived credit risk.
Bond prices typically move inversely to interest rates. When market rates rise, existing bonds with lower coupons become less attractive, so their prices often fall; when rates fall, prices often rise.
Key risks are interest-rate risk (price falls when rates rise), credit/default risk (issuer may not pay), and liquidity risk (difficulty selling quickly). Fees and taxes can also affect net returns.
Treasury Bills are short-term government securities with 3/6/12-month tenors. Bonds are typically longer-term fixed-income instruments; in Pakistan, Pakistan Investment Bonds (PIBs) run from 3 to 30 years.
Maturity is the date when the bond’s principal is scheduled to be repaid by the issuer. Up to maturity, the bond may pay periodic coupons. If you sell before maturity, your return depends on the sale price.
06—Related terms
Keep building the picture.
Securities that pay a fixed return over a defined period, such as bonds or government securities. Generally considered lower risk than equities.
The annual interest rate payable on a bond, expressed as a percentage of its face value. A bond with a face value of PKR 1,000 and a 10% coupon rate pays PKR 100 in interest per year.
The income generated by an investment over a period, expressed as a percentage of the investment's cost or current market value. Dividend yield and bond yield are the most commonly referenced forms.
The total return an investor would earn on a bond if held until its maturity date, accounting for all coupon payments and the difference between the purchase price and face value. The most comprehensive measure of a bond's return.
A short-term government debt instrument issued by the Government of Pakistan, with maturities of 3, 6, or 12 months. Sold at a discount to face value, with the return being the difference between the purchase price and the amount received at maturity. Considered one of the safest investments in Pakistan.
A long-term government debt instrument issued by the Government of Pakistan, with maturities ranging from 3 to 30 years. Pays a fixed coupon rate on a semi-annual basis and is sold through primary dealers via auctions announced by the SBP.
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