Article Advise

submitted: Sep 4th 2008 | by: JenniferWyatt | Total views: 4 | Word Count: 454 | |

There are many different bond types that a bond investor can invest in and it is important to have different types of bonds in a portfolio because the portfolio. A diversified portfolio is less risky and having different bond types means different issuers, different maturities, and different interest payments. While most people refer to different bond types according to the type of issuer, bonds can also be classified by their characteristics. Below are some common bond types.

One of the most popular bond types is corporate bond. Corporations issue corporate bonds in order to raise money. Corporations can issue different bond types with varying characteristics, maturities and terms. Some corporate bonds are callable and with higher interests but they may be more risky than those with lower interest rates. Bond ratings such as those by Moody's Investors Services will help investors decide between different bond types.

If safety is your primary concern, then investing in US treasury issues is the way to go. US Treasury issues are backed by the full faith and credit of the US government. There are a few different bond types issued by the US government such as T-bills, T-bonds, and T-notes. T-bills are short for Treasury bills, T-bonds for Treasury bonds and T-notes for Treasury notes. T-bills have the shortest maturity dates and are good for short term investments if yield is not the investor's primary objective.

Other bonds that are quite safe are agency bonds. Agency bonds are bonds issued by agencies related to the government such as Fannie Mae and Freddie Mac. There can also be different bond types issued by agencies and each may or may not be backed by the full faith and credit of the US government. These bonds usually pay higher interest rates than US government bonds and they are usually backed by collaterals such as mortgages and other types of loans.

Municipal bonds are also considered safe investments but they also usually do not pay as much interest as corporate bonds. However, municipal bonds or munis for short offer added tax advantages. Their interest payments are usually tax free. Municipal bonds are issued by municipalities such as schools, cities, towns, counties, and states. They can issue different bond types to finance different projects. The terms of different municipal bonds can vary significantly.

Investing in different bond types will enable investors to lower their risk and increasing their returns. By having not only bonds by different issuers but also bonds with different terms, maturity dates, different interest rates and interest payment schedule as well as different risk levels, investors can smooth out the fluctuations of their bond portfolio. There are many different bond types to choose from and there are many tools to help investors choose among them.

About the Author

For more resources on the Different Bond Types and each of their individual strengths and weaknesses, stop by the Corporate Bonds information website right now.

Comments

No comments posted.

You do not have permission to comment. If you log in, you may be able to comment.