Government Bonds.
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
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Bills – debt securities maturing in less than one year.
Notes – debt securities maturing in one to 10 years.
Bonds – debt securities maturing in more than 10 years.
Bills – debt securities maturing in less than one year.
Notes – debt securities maturing in one to 10 years.
Bonds – debt securities maturing in more than 10 years.
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Marketable securities from U.S. government – known collectively as Treasuries – follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills). Technically speaking, T-bills aren’t bonds because of their short maturity.
Marketable securities from U.S. government – known collectively as Treasuries – follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills). Technically speaking, T-bills aren’t bonds because of their short maturity.
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All debt issued by the U.S. government is regarded as extremely safe, as is the debt of any stable country. The debt of many developing countries, however, does carry substantial risk. Like companies, countries can default on payments.
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Corporate Bonds
A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond is less than five years, intermediate is five to 12 years, and long term is over 12 years.
A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond is less than five years, intermediate is five to 12 years, and long term is over 12 years.
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Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investment because of the risk the investor must take on. The company’s credit quality is very important: the higher the quality, the lower the interest rate the investor receives.
Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investment because of the risk the investor must take on. The company’s credit quality is very important: the higher the quality, the lower the interest rate the investor receives.
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Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity.
Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity.
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Zero-Coupon Bonds
This is a type of bond that makes no coupon payments but instead is issued at a considerable discount to par value. For example, let’s say a zero-coupon bond with a $1,000 par value and 10 years to maturity is trading at $600; you’d be paying $600 today for a bond that will be worth $1,000 in 10 years.
Zero-Coupon Bonds
This is a type of bond that makes no coupon payments but instead is issued at a considerable discount to par value. For example, let’s say a zero-coupon bond with a $1,000 par value and 10 years to maturity is trading at $600; you’d be paying $600 today for a bond that will be worth $1,000 in 10 years.
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