BONDDESK® | Fixed Income Asset Types


This page lists the major types of fixed income securities and provides a brief description of each. For a more detailed explanation of a particular security, click the “more” link at the end of its description. You can also click here for a comprehensive list of all fixed income security types. The detailed descriptions are all provided by www.investinginbonds.com.

 

Tax-Exempt Bonds

Coupon payments from tax-exempt bonds are not subject to federal income tax so they pay a lower coupon rate than taxable bonds. They are commonly purchased by investors who are in a high income tax bracket.

 

Municipal bonds

Municipal bonds, also called “munis,” are issued by state governments, their subdivisions, and certain local authorities. The proceeds of the bonds are typically used for large public infrastructure projects (e.g., roads, schools, etc.). More...

 

Taxable Bonds

Coupon payments from taxable bonds are subject to federal and state income tax so they pay a higher coupon than tax-exempt bonds. They are commonly purchased by investors in low income tax brackets or in tax-deferred accounts (e.g., 401k plans, IRAs, etc.).

 

U.S. Treasury Securities

U.S. Treasury securities are issued by the United States government. The proceeds of the bonds are used to fund all types of government operations. When held to maturity they are risk free because both the principal and interest payments are guaranteed by the U.S. Treasury Department. The government sells Treasuries with a wide range of maturities (from 3-months to 30-years). More...

 

Treasury Inflation Protected Securities (TIPS)

TIPS are special U.S. Treasury bonds that are indexed to inflation, meaning their principal value and coupon payments increase over time. Suppose you buy a 1-year standard Treasury for $1,000 during a year with 5% inflation. At the end of the year the federal government will pay you $1,050 to cover your initial principal investment plus inflation. With a standard Treasury, the government will only pay $1,000 regardless of inflation. In exchange for this principal protection TIPS bonds pay a lower coupon than a standard Treasury. More...

 

Certificates of Deposit

Certificates of deposit (CDs) are time deposits, meaning you lend your money to a bank for a specific holding period in exchange for a predetermined interest rate. When the holding period ends the bank repays your principal and interest. CDs issued under the current FDIC program are guaranteed by the U.S. government. More...

 

Agency Bonds

Agency bonds are issued by government sponsored enterprises (GSEs). These are public entities established by the U.S. government to extend loans to particular types of borrowers, including homeowners, students, and farmers. Although not guaranteed, these bonds are typically low risk because GSEs are supported by the federal government. More...

 

Corporate Bonds

Corporate bonds are debt securities issued by large corporations. The proceeds of the bonds are used to fund all types of corporate operations. These bonds fall into two basic categories: investment-grade and high-yield. Investment grade bonds are lower risk than high-yield bonds so they pay lower coupons. More...(investment grade)     More...(high-yield)

 

Callable Bonds

Callable bonds are bonds that can be prepaid before the maturity date. Suppose you buy a callable corporate bond with 5-years remaining till maturity. The issuer has the option to repay the principal of the bond any time before the maturity date and after the first call date. Bonds are prepaid most often during periods of falling interest rates. More...