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Investors can buy different bond types in their portfolio. It is good having different bond types because of diversification. A portfolio should be properly allocated and diversified. Different bonds offer different risks, maturities, interest rates and terms. Bond types are usually classified according to the issuer but sometimes they are categorized based on their characteristics. A bond issuer can issue bonds of different characteristics. Examples of different bond types are given below.

Corporate bonds are the most popular type of bonds. Corporate bonds are IOUs issued by corporations to raise money for working capital. Corporations can issue different bond types with different prices, interest rates, call features, and maturity dates. Corporate bonds can be risky if the issuing corporation is in trouble. By looking at bond ratings such as those published by Moody’s Investors Services or S&P, investors can see which ones are safer than others.

If safety is your primary concern, then investing in US treasury issues is the way to go. US Treasury issues are backed by the full faith and credit of the US government. There are a few different bond types issued by the US government such as T-bills, T-bonds, and T-notes. T-bills are short for Treasury bills, T-bonds for Treasury bonds and T-notes for Treasury notes. T-bills have the shortest maturity dates and are good for short term investments if yield is not the investor’s primary objective.

Other bonds that are quite safe are agency bonds. Agency bonds are bonds issued by agencies related to the government such as Fannie Mae and Freddie Mac. There can also be different bond types issued by agencies and each may or may not be backed by the full faith and credit of the US government. These bonds usually pay higher interest rates than US government bonds and they are usually backed by collaterals such as mortgages and other types of loans.

If you want the added tax benefits of investing in bonds, then municipal bonds is the type of bond that can offer tax benefits. Municipal bonds are issued by municipalities such as cities, states, towns, and schools. There are also different bond types issued by municipal issuers. Municipal bonds are issued in order to finance a large scale project such as building a road or a bridge. In general, municipal bonds are considered safe investments.

While most of the different bond types are classified according to the type of issuer that issue them, there are different bond types that are classified based on their characteristics. A zero coupon bond, for example, can be issued by many different types of issuer but the bonds always pay no interests unlike other bond types that pay regular interests and the principal at the end. When building your bond portfolio, you need to include many different bond types, of different characteristics, not simply just bonds issued by different types of issuers.