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| | | Investing in bonds sounds like a pretty straightforward concept. However, when you actually go looking for bonds to invest in, you may find that there are many types of bonds that one can invest in. Today, we're going to go over four different types of bonds that you can invest in. | | Corporate Bonds | | Corporate Bonds are one of the more common types of bonds that you hear about. Companies issue bonds because bond markets offer more favorable terms and lower interest rates. A corporate bond is a type of debt security that is issued by a firm and sold to investors. | | The purpose of corporate bonds is to provide a company capital, while the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond reaches maturity, that means that the payment period is over and the company has paid off the investor. | | Government Bonds | | Government bonds are issued by a government to support government spending. These types of bonds can pay interest payments called coupon payments. These bonds are considered low-risk investments since the issuing goverrnments back them. | | The entire category of bonds issued by the government is referred to as "treasuries". Government bonds issued with a year or less to maturity are called "bills", while bonds issued with 1 to 10 years maturity are called "notes"; and bonds issued with more than 10 years to maturity are referred to as "bonds". | | Agency Bonds | | An agency bond is issued by a government-sponsored agency or by a federal government department that is not the US Treasury. Some of these bonds are not fully guaranteed in the same way that US Treasury and municipal bonds are. | | Most agency bonds are sold in a variety of increments and they pay a semi-annual fixed coupon. Some agency bonds have fixed coupon rates. However, agency bonds have interest rate risks. A bond investor may buy bonds only to find that interest rates rise. Naturally, this make agency bonds a greater risk for long-term bond prices. | | Municipal Bonds | | Municipal Bonds are like government bonds in that they are issued by our state, municipality, or county. Municipal bonds finance expenses like construction of highways, bridges or schools. They are often thought of as loans that investors make to local governments. Municipal bonds are exempt from federal taxes and most state and local taxes. This make municipal bonds especially attractive to people in high income tax brackets. | | | | | | |
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