A bond is a fixed-income security which pays a fixed interest amount annually and the payment of the principal when it matures. The coupon rate is the interest rate the bond pays annually. They are normally long duration instruments from two years up to 30 years as opposed to the money market which is short duration, of around one to six months. Government bonds are also known as gilts as they are guaranteed by the state. When you purchase a bond you are lending your money to a government (or company) and, in return, they guarantee to pay you a fixed interest amount annually (the coupon) and the principal amount on maturity.