An Exchange-Traded Note (ETN) is a financial instrument that combines characteristics of both bonds and exchange-traded funds (ETFs). Issued as debt securities, ETNs are unsecured, unsubordinated debt notes typically issued by financial institutions, with the promise to pay the return linked to a specific index or benchmark, minus fees and expenses. Unlike ETFs, ETNs do not hold underlying assets; instead, their returns are derived from the performance of the referenced index or asset.

Investors who purchase ETNs are essentially lending money to the issuer in exchange for the potential return linked to the performance of the underlying index or asset. The value of an ETN is determined by the index it tracks, and as such, it can be subject to market volatility and fluctuations.

One distinctive feature of ETNs is that they do not make periodic interest payments like traditional bonds; instead, investors receive a single payment at maturity or when they sell the ETN. Additionally, the credit risk associated with ETNs is tied to the issuer's financial health; if the issuer encounters financial difficulties, it may impact the ETN's value.

While ETNs provide a convenient way for investors to gain exposure to various markets or assets, they come with risks, including market risk and credit risk, that investors should carefully consider before incorporating them into their investment portfolios.