Owning Bonds

Key Takeaways

• Bond features that can determine risk and return include

  • coupon and coupon structure,
  • maturity, callablility, and convertibility,
  • security or debenture,
  • seniority or subordination,
  • covenants.

• The U.S. government issues Treasury

  • bills for short-term borrowing,
  • notes for intermediate-term borrowing,
  • bonds for long-term borrowing,
  • TIPS, which are inflation-protected.

• State and municipal governments issue

  • revenue bonds, secured by project revenues, or
  • general obligation bonds, secured by the government issuer.
• State and municipal government muni bonds may or may not have tax advantages for certain investors.
• Corporate bonds may be issued through the public bond markets or through private placement.
• U.S. government bonds are issued through auctions managed by the Federal Reserve.
• The secondary bond market offers little transparency because of the differences among bonds and the lower volume of trades.
• To help provide transparency, rating agencies analyze default risk and rate specific bonds.