Types of Bonds

Types of bonds

Government Bonds are the safest of all bond types. Since it is issued by a national government, it has less risk than corporate bonds because governments can always find ways to generate income. Increasing taxes or printing more money are one of the methods governments utilize to pay their debts.

Municipal Bonds ranks second after government bonds in terms of quality, issued by cities, states, provinces or any local government organization these bonds are often tax-exempt.

Corporate Bonds are issued by companies and depending on the issuer's credit quality, it does generate a much higher yield than Government and Municipal bonds to attract investors to purchase the debt. The risk involved in purchasing corporate bonds is, unlike the government's way of generating income, corporations are more likely to default if they cannot sustain their revenues needed to repay their obligations. Since they just can't simply create money or tax people, corporations depend on their product's ability to sell.

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