Types of Bonds

There are many types of bonds. Within each type of bonds, there are also sub types of bonds. There are different types of corporate bonds, for example, as there are different types of savings bonds and different types of government bonds. Each country also has different types of bonds. Different types of government bonds in India, for example, are completely different from types of bonds offered by the government of Canada.

What are the most common types of bonds?

Below are the main types of bonds you will often encounter when investing in bonds.

US Government bonds The US government bonds are the most secured type of bonds backed by the full faith and credit of the US government. US government bonds are considered one of the safest type of bonds. Although US government bonds are safe from default, the value of these bonds do fluctuates with interest rates.

Municipal bonds

Municipal bonds are popular because their interests are not subject to federal income taxes and sometimes state income taxes and local taxes depending on the bonds. Municipal bonds are tax free bonds. Municipal bonds are often used for city financing and construction for the city or municipalities. You often hear people discuss types of bonds for city financing or types of construction bonds referring to municipal bonds.

Corporate bonds

Corporate bonds are issued by corporations. Corporate bonds' interests and principal repayment are subject to the strength and credit worthiness of the corporation that issue them. Some corporate bonds are good investments carrying high Moody's ratings or S&P ratings. Others are purely for speculations.

Foreign bonds

Foreign bonds are welcomed in investment portfolios for added diversification. Global or foreign bonds have different risks and returns vs US bonds.