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4 Major Types of Bonds You Can Purchase in 2020

David Waring

Author: David Waring

Wrapping your head around what bond to buy is not an easy endeavor.

There are a huge number of bonds issued each year, but there are only a few types of bonds.

In fact, there are four different types of bonds in the UK.

As you’ll see from the links in each section below, we have a lot of information on the different types of bonds here at LearnBonds.com.

Read the short overviews on the 4 main types of investment bonds below and then delve further into any of them for a deeper understanding.

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1. US Government Bonds (Treasuries)

When people say that the US debt is over $18 trillion, what they are really saying is the US Government has over $18 trillion worth of outstanding debt.

Much of this outstanding debt is in the form of bonds they have issued, called treasury bonds.

Treasuries are different from all other types of bonds, because they are issued by the US government, and are therefore considered stable in value and virtually free of credit risk.

For this reason, the yields of all other types of bonds are compared to the yield on a Treasury bond with the same maturity.

Here is a list of some of our more popular articles on US Government Bonds (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 homeownership 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.

Read this article to learn more about Agency bonds.

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 making them very attractive to investors.

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.

4. Corporate Bonds (Corporates)

And last but certainly not least are corporations, who often choose the bond market as a way of raising capital to fund improvement in their businesses.

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.

This lesson is part of our free guide to The Basics of Investing in Bonds.

The next lesson in the series is called “How Interest Rate Changes affect Bond Prices”.

 

Glossary of Bonds Terms

Bond

A bond is when companies or goverments need to generate funds and when you invest you will receive you lump sump back with interest at the end of your agreement.

Treasury Bond

Bonds issued by the United States Department of the Treasury to finance government spending.

Treasury Note

A Treasury Note are bonds issued by the United States Department of the Treasury and last up to 10 years.

Treasury Security

Treasury securities are the bonds issued to investors by the U.S. government

Municipal Bonds

A Municipal Bond is usually issued by local Governments to finance public projects such as roads, schools, and airports. You will recieve you lump sum and interest back at the end of the term.

Corporate Bonds

A Corporate Bond is issued by businesses to raise funds for expansions or projects. You will recieve you lump sum and interest back at the end of the term.

Premium Bonds

A Bond that has no interest rate but your investments are entered into prize draws to win £25 to £1mil.

Savings Bond

Usually offered by Banks and Building Societies, Saving Bonds will last for a fixed term and earn interest. You are not able to access the money during the fixed term.

Fixed Rate Bonds

A Fixed Bond will start and end with same Interest Rate.

See Our Full Range Of Bonds Resources – Bonds A-Z

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All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
David Waring

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.

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