A bond is an IOU. Whoever issues it, for example a government, a municipality, a bank or a company, borrows money from whoever buys it. In return, the issuer promises to pay InterestInterestThe price a borrower pays to borrow money, and what a saver earns for lending it. Usually given as a percentage per year. and repay the amount on a set date. When you take out a mortgage, you also sign a bond, and then you are the one who owes the money.
Key terms
- Principal is the amount lent.
- Interest is paid regularly, for example once a year, or builds up until maturity.
- Maturity is the date the principal is repaid.
- Yield is the return the market demands from the bond given its price. It rises when the price falls, and the other way round.
Icelandic government bonds
The Icelandic government raises money partly by issuing government bonds (ríkisbréf). Lánamál ríkisins, a unit within the Central Bank, handles the issuance on behalf of the Ministry of Finance and Economic Affairs. The government issues both nominal bonds and index-linkedIndexationWhen the principal of a loan or deposit follows the consumer price index. Indexation protects savings from inflation but makes debts rise with prices. bonds. The principal of index-linked bonds follows the consumer price index, so it rises with inflation. Pension funds are among the largest holders of Icelandic bonds.
What are the risks?
- The issuer doesn't pay. This is an example of counterparty riskCounterparty riskThe risk that whoever you deal with, or trust with your assets, fails to keep their side of the deal, for example because of bankruptcy or fraud.. Government bonds are generally seen as safe, but corporate bonds vary. In the 2008 banking collapse, holders of the Icelandic banks' bonds lost a large part of their claims.
- Interest rate risk. If market rates rise, older bonds paying lower interest fall in price. That matters if you need to sell before maturity.
- Inflation. Nominal bonds with a fixed rate lose real value if inflation turns out higher than expected.
Bonds and crypto
Bonds pay interest agreed in advance and usually swing much less than shares and crypto. Bitcoin pays no interest. The links are closer than they look, though: stablecoins such as USDCUSDCA stablecoin issued by the US company Circle that tracks the US dollar, so one USDC should always be worth about one dollar. are backed mostly by short-term US government bonds, and government bonds are among the assets most often tokenised on blockchains.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 2 November 2026.