Bonds are the second-largest asset class after equities and the foundation of most institutional portfolios. A 10-year Swiss Confederation bond, for example, promises to pay a fixed coupon every year and return the CHF 1,000 face value at maturity. The credit quality of the issuer determines the yield: Swiss government bonds carry virtually no default risk and yield little, while high-yield ('junk') corporate bonds pay much more in exchange for real credit risk.
Bond prices move inversely to interest rates. When the central bank hikes, existing bonds with lower coupons become less attractive and their market price falls — a phenomenon called duration risk. A 10-year bond loses roughly 8–9% of its value for every 1 percentage point rise in rates, illustrated brutally in 2022 when global bond indices fell 15–20%.
For a household portfolio, bonds play three roles: predictable income, diversification against equity downturns, and capital preservation for nearer-term goals (3–7 years). Direct purchase of single bonds gets complicated; most investors use bond ETFs or actively managed funds that handle the laddering and credit selection.
Bond price = sum of (coupon / (1+yield)^t) + face value / (1+yield)^n
An investor buys a 10-year Confederation bond with a 1.5% coupon at face value CHF 10,000. Each year she receives CHF 150 in coupon income; at maturity she gets back CHF 10,000. Total nominal return over 10 years: CHF 1,500 (15% gross).