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Investors can buy different bond types in their portfolio. It is good having different bond types because of diversification. A portfolio should be properly allocated and diversified. Different bonds offer different risks, maturities, interest rates and terms. Bond types are usually classified according to the issuer but sometimes they are categorized based on their characteristics. A bond issuer can issue bonds of different characteristics. Examples of different bond types are given below.

A corporate bond is a type of bond that is issued by a corporation, rather than a government, an agency or other types of issuers. Again, a corporation can issue bonds with different characteristics which some investors may refer to as different bond types. Corporate bonds are often more risky than bonds issued by the US government and municipal bonds. When investing in bonds you need to pay attention to the bond ratings.

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.

This entry was posted on Saturday, September 6th, 2008 at 2:23 am and is filed under Business.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.