The medium-term bond market model concentrates on changes in the bond market. When considering global savings and long-term global interest rates, the loanable funds model is typically a long-term model.
In exchange for regular interest payments, a bondholder loans money to a business or the government for a predetermined length of time. When the bond matures, the bond's issuer pays the investor their money back.
Similar to an IOU, a bond is a debt obligation. By purchasing corporate bonds, investors are making a loan to the corporation issuing the bond. In exchange, the business agrees in writing to pay interest on the principal when the bond matures and, in most situations, to return the principal.
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