Bonds

Bonds are loans to corporations, governments or municipalities that are used as investment vehicles. They generally pay a fixed interest rate and return the principal at maturity.

Traditionally, fixed income securities such as bonds can be a less volatile component of a portfolio. 

Treasury bonds are issued by the U.S. government and are generally considered very safe. 

They have tax advantages but, because their risk is considered low, the bonds usually earn lower interest than other kinds of fixed-income securities. 

Corporate bonds are issued by companies, with the risk varying by credit rating. 

These bonds usually earn higher interest than CDs or government-backed bonds with the same maturity, but can experience greater price volatility.

Municipal bonds or “munis” are issued by states, their agencies and subdivisions, such as counties and municipalities. 

There are two main categories of municipal bonds: general obligation backed by taxing power, and revenue bonds, backed by revenues from a project.

Agency bonds are issued by federally-sponsored agencies, though these investments are not guaranteed by the U.S. government. 

The risk of investing in these bonds varies based on the credit rating of the agency that issued them.

Zero coupon bonds are issued by the federal government or by a municipal government. 

Unlike other government bonds, investors receive a single payment when the bond matures, but no periodic interest payments prior to that.