In this educational monologue, Mark Moss breaks down the fundamental mechanics of bonds by highlighting the two distinct parties involved—the issuer (borrower) and the holder (lender). He explains that the issuer receives cash up‑front and must make periodic coupon (interest) payments, while the holder provides the cash and receives those coupons. At maturity, the issuer repays the face value, returning a fixed nominal amount to the holder. Moss emphasizes that this fixed nominal claim does not adjust for inflation or currency devaluation, meaning that over long horizons such as 5, 10, 20, or 30‑year bonds, the real value received by the holder can be eroded, even though the contractual payments remain unchanged.
Chapters
when they play in this bond market, when they're doing the Treasury management on the bond, there's 2 sides to every bond. Okay. So what am I talking about? Well, let's take a look at this. Let's break it down. We have the borrower and we have the lender. Okay. So we have the issuer of the bond and we have the holder of the bond. So there's 2 sides broken down right here. So at issue, the issue, we have the person that receives the cash. The issuer receives the money. The holder, they're going to pay the cash. So one person is going to give the money, the other person is going to receive it. That's easy enough to understand. And then the person who receives the cash has to pay the coupon, has to pay the monthly interest payments on that. Okay? And the holder, they gave the cash, but now they receive the monthly dividends. Now, at maturity, the person who received the money has to pay it all back. The person that gave the money gets the face value back. They get all the payments the whole time and the total amount. But here's the thing, until maturity. So the obligation is fixed in nominal terms. The holder receives back a fixed claim in nominal terms. Why is that important? Well, you see, if I receive the money, yes, I have to make those small interest payments, but I can do whatever I want with that money. I can go make as much as I want, and I can change the ability of what I did with that money. I could make more products or new R&D or buy new whatever it is. But they only get back a fixed amount and they get it back in nominal terms. So that means if it's a 5, 10, 20, 30-year bond, when I pay them back in 5, 10, 20, 30 years, it's with devalued dollars, but they're not going to get it adjusted for the devaluation or for the inflation. They get it back in nominal terms.
