- Bonds can be classified by
issuer —
either governments or companies. The U.S. government issues treasury notes, treasury bonds, and savings bonds. Local governments issue municipal bonds. From the business sector come corporate bonds, and their higher-risk counterparts, junk bonds.
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- Bonds can be classified by maturity —
short-, medium-, and long-term. You can match a bond's maturity (or when it comes due) to a time horizon you may have.
- Some bonds mature early if the borrowing entity manages to come up with funds to repay its "loan" sooner. This is good for the borrower, but not necessarily so for you.
- You can sell a bond before it matures, but it might be hard to find a buyer, especially if interest rates have gone up since you bought.
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- Bonds also can be classified by credit quality —
AAA (safest) to D (riskiest). To find out how much investment risk a specific bond poses, check with an objective source. Independent rating agencies such as Moody's and Standard & Poor's predict a bond issuer's ability to repay.
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