4 Types of Bonds You Must Know

4 Types of Bonds

Here we will introduce about 4 types of the safest bonds. Usually, government issues most bonds, whilst many companies and corporations offer their bonds as well. Because governments, compared to companies, are more stable and can raise taxes if needed to cover debt payments.

U.S. Treasuries

You can consider US Treasuries as the safest possible bond investments. Federal income tax is paid on interest from these bonds, but the interest is usually exempt from state tax. Because they’re so safe, yields are generally the lowest available, and payments may not keep pace with inflation. Treasuries are extremely liquid.

Government agency bonds

Some U.S. government agencies can also issue bonds. E.g., Housing-related agencies. Most agency bonds are taxable at the federal and state level. These bonds are typically high-quality and very liquid, although yields may not keep pace with inflation. Several agency bonds are fully supported by the U.S. government, making them almost as safe as Treasuries. 

Municipal bonds

Municipal bonds called “munis” or “muni bonds” are issued by states and other municipalities. As the issuer can raise money collecting taxes, these bonds are also safe. However, they are not considered safe as U.S. government bonds, and the issuer can default.

Corporate bonds

Companies issue corporate bonds, and their credit risk ranges over the whole spectrum. Interest from these bonds is taxable at both the federal and state levels. Because these bonds aren’t quite as safe as government bonds, their yields are generally higher.

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