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Their are several major types of bonds. Below is a summation of some of the larger US bond issues available to investors.
- T Bills, T-Notes, and Treasury Bonds
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Government issued debt backed by the full faith and credit of the United States federeal government. They are commonly referred to as 'treasuries'. The US government breaks down the debt issues into 3 categories, based on maturation period. Specifically, the 3 classes are:
- Treasury Bills (T Bills) - Government issued debt less than 1 year
- Treasury Notes (T Notes) - Government issued debt lasting from 1 to 10 years.
- Treasury Bonds (T Bonds) - Government issued debt lasting more than 10 years
Despite the various names, they all behave fundamentally the same. You loan the government money, you receive principal plus interest back.
Government issued bonds are generally considered highly rated/not risky. Investors believe the government can simply raise taxes or print more money to cover the principal. However, even federal governments go bankrupt - as Russia did in 1998 during a rubble crisis. Additionally, inflation can bring down the purchasing power of bond earnings.
- Corporate Bonds
Bonds issued by corporations. They generally have higher interest rates and more risk than any other bond class. - Munis
Bonds issued by local governments. They have less risk and lower rates than corporate issues. But, unlike coporate bonds, they enjoy important tax advantages. - Agency
Pools of like assets grouped to allow trading in an illiquid asset (such as auto loans)
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