References:

Vanguard Total Bond Market Index Fund ETF (as proxy for U.S. Bond Market)

Transcript:

Bonds are the “ying” to stocks’ “yang.” They behave differently because bonds are essentially debt contracts. 

Bonds have a certain level of guarantee because it is an agreement to lend money to a corporation or a government in exchange for an interest payment. Interest payments are typically paid semi-annually. 

At the end of the term of that agreement, the company or government agrees to pay you back the full principal. 

When a company is going through bankruptcy, bonds have a higher priority than stocks because it is assumed that a stockholder earns more return for taking more risk. That's why bonds tend to be more conservative investments because there are legal protections around the value of a bond, that even if a company were to go bankrupt, bondholders (depending on the level of seniority of the bond) would be ahead of all the shareholders to get some of their money back. 

In the United States, bond interest will be taxed heavier than the dividends you get from a stock mutual fund. Today, stock dividends and long-term capital gains are taxed at a preferred rate, while interest from bonds is taxed at ordinary income rates. 

The bond market tends to be less volatile than the stock market as well as lower gains.