There are millions of different bond issues, but there are only a few types of bonds. In fact, the large majority of bonds fall into one of the 4 categories outlined below. As you can see from the links in each section, we have lots of information on all the different types of bonds here at Learn Bonds, so enjoy!
1. US Government Bonds (Treasuries)
When people talk about the US debit being over $16 trillion, what they are really saying is the US Government has over $16 trillion worth of outstanding debt. Much of this outstanding debt is in the form of bonds they have issued, called treasuries. Treasuries are different from all other types of bonds, because they are issued by the US government, and are therefore considered free of credit risk. For this reason, the yields of all other types of bonds are compared to the yield on a treasury with the same maturity.
Here are some of our more popular articles on Treasury bonds.
An introduction to treasury bonds – In this article and video we talk about the different types of treasury bonds, and how treasuries differ from other types of bonds.
Treasury Auctions 101 – Here we discuss how treasury bonds are sold after they are issued, and how individuals can buy treasuries through the auction commission free.
Treasury inflation protected securities – TIPS are a special type of treasury bond that is designed to protect investors from inflation. Learn more here.
The Safety of US Treasuries – With the US debt level rising at a rapid pace, some are starting to question just how safe US Treasuries really are. Here are the facts.
2. Agency Bonds (Agencies)
Agency bonds are bonds issued by institutions that were originally created by the US Government to perform important functions such as fostering home ownership, and providing student loans. The primary government agencies are Fannie Mae, Freddie Mac, Ginnie Mae and Sallie Mae. While these agencies technically operate in a similar manner to a corporation, they are thought to be implicitly backed by the US government.
You can learn more about Agency bonds here.
3. Municipal Bonds (Munis)
State and local governments often borrow money by issuing bonds, similar to the US Government, but on a smaller scale. Municipal bonds fund a wide variety of projects and government functions ranging from police and fire departments to bridges and toll roads. Municipal bonds are popular among individual investors because they provide tax advantages that other types of bonds do not. Most municipal bonds are free from federal income taxes. If you buy a municipal bond in the state where you reside then it is often free from state and local income taxes as well.
Here are some of our more popular articles on Municipal Bonds:
An Introduction to Municipal Bonds – The different types of municipal bonds, how to buy municipal bonds, what you should consider before investing and more.
Municipal Bond Safety - There has been lots of talk about a coming wave of defaults in the municipal bond market, however the facts show otherwise.
5 Tips for Municipal Bond Investors – Our interview with Peter Hayes, one of the top municipal bond fund managers in the world.
How to buy municipal bonds – If you are considering buying individual municipal bonds, you may want to consider doing so through what is known as the retail order period. Learn more here.
4. Corporate Bonds (Corporates)
And last but certainly not least are corporations, who often choose the bond market to raise capital as well. A corporation can issue bonds for many reasons, including paying dividends to shareholders, purchasing another company, funding an operating loss, or expansion. Corporate bonds differ from other types of bonds because they are almost always taxable at both the federal and state level. As a group, corporate bonds also have much more credit risk than the other types of bonds outlined above.
Here are some of our more popular articles on corporate bonds.
An introduction to corporate bonds – More on how corporate bonds differ from other types of bonds, where to find corporate bond prices, callable bonds, bond covenants and more.
Junk Bonds – Feeling adventurous and willing to take on much more risk than with other types of bonds for a potentially higher payout? Then junk bonds may be for you.
Corporate bond defaults – Ever wonder what happens after a corporation defaults on its bonds? This article gives you all the details.Get our free guide to income investing here.