What Are the Different Kinds of Bonds Available for Purchase in the United States?

What Are the Different Kinds of Bonds Available for Purchase in the United States?

Common bond types include U.S. government bonds, municipal bonds and corporate bonds, according to Investopedia. Different bonds, such as convertible and callable bonds, also offer varying payment schedules and terms.

U.S. government bonds include Treasury bonds, Treasury notes and Treasury billings, notes Investopedia. Treasury bonds mature in 10 or more years, while notes expire between one and 10 years, and bills have a duration of less than one year. Investors normally see federal government bonds as being almost free from default risk, although government bonds from other countries can be much riskier.

Many cities also issue municipal bonds, or "munis," explains Investopedia. These bonds carry greater risk, yet cities infrequently declare bankruptcy. However, interest from these bonds are free from federal tax in the United States, making them more alluring. Many regional governments do not charge residents taxes on these bonds. Because of these savings, municipal bonds often offer lower pre-tax rates of return relative to similar investments.

Many American corporations also issue debt, according to Investopedia. Short-term bonds have durations of less than five years, intermediate bonds last as many as 12 years, and long-term bonds have lengths of 12 or more years. Bond quality ranges between companies, with more stable, secure investments offering lower returns. Investors refer to bonds with high ratings from agencies such as Standard and Poor's as investment-grade and label other investments as junk bonds.

Corporate bonds also offer differing features, states Investopedia. Adjustable bonds result when a company exchanges existing debt for lesser-value bonds to avoid bankruptcy. Callable bonds allow issuers to purchase their debt back from investors at a premium before it matures, while convertible bonds include a feature for investors to exchange their debt for a set amount of equity.