A bond is a promise made to the buyer of the bond to pay the buyer back over a period of time with interest. Every bond has a maturity date,(when a bond expires), a coupon rate(how much interest it pays), and a yield(how much an investor should make from the bond). When the bond reaches the maturity date, the owner is paid back the original value spent on the bond. The three main bonds are Treasury Bonds, Corporate Bonds, and Municipal Bonds.
Treasury Bonds are issued by the US government and are backed by the government. Since they are backed and are considered the safest, they yield the lowest of all the bonds. However, they are heavily bought since they are the safest.
Corporate Bonds are issued by corporations to pay for various business expenses. Since they are riskier, they yield higher amounts. All corporate bonds have a credit rating ranging from AAA(the best) to junk(the lowest). However, the credit agencies ratings don’t matter much if the corporation is a fraudulent one.
Municipal bonds are usually issued by city governments. They usually yield higher than treasuries but lower than corporate bonds. However, municipals main buying point are the fact that they are exempt from federal income tax and the state’s income tax of that they were issued in. However, some parties are trying to get it passed that the exemption is unconstitutional. The passing of that is unlikely.
Bonds are good way for a conservative investor to make money. Bonds are also a good way for people to draw income from a source. However, like every investment they have risks and that should be taken into thought before investing in them.