Bond Types – The Different Types of Bonds

Bond Types – The Different Types of Bonds

Most people don’t understand there are different bond types. Bonds offer good returns and at the same time are very risk averse. Bonds come in four different varieties. They are sold by foreign governments, local governments, state governments, corporations and of course the federal government. This article will focus on the four different bond types.

One of the best advantages that bonds offer is the fact that you get your original investment back. This makes this an excellent means for investment especially for those with a low risk tolerance and of course beginners.

The treasury department is the place where the United States Government sells bonds. These can be purchased having dates of maturity from 3 months to 360 months or thirty years.

Bonds of the treasury kind include Treasury Bonds, Treasury Bills (T-Bills) and Treasury Notes(T-Notes). Of course these treasury bonds are 100% backed by the government. The only tax paid on these investments is the tax on the interest they earn.

Bonds of the Corporate kind are sold by the public securities markets. Keep in mind that a company selling its debt is what a corporate bond is made of. These kind of bonds typically have higher interest rates then treasury bonds but they also have a higher risk associated with them. The idea here is that if the company goes out of business then these bonds become worthless.

Bonds can also be sold by Local and State governments. One definite difference between their bonds and those sold by the Federal government is that Local and State governments can go bankrupt. This is the main reason they also offer a higher interest rate then those offered by the Federal government. Another difference is that Local and State government bonds are completely tax free (i.e. this includes interest). In some instances Local and State taxes may also be waived. These are known as Tax-free Municipal bonds.

The last kind of bond we will discuss are foreign bonds. For most people buying these can truly be pretty difficult. Most people that participate in this kind of bond do so by mutual funds. Keep in mind that this is the riskiest bond of the bond types discussed since it depends on the stability of a foreign government.

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