10 Types of Bonds to invest in 2021

Types of Bonds to invest

Are you looking to invest in bond to build your secure portfolio in 2019?

Well, before investing in bonds, you should know how many types of bonds are there and which bonds are more secure than others.

We have summarized the top 10 types of Bonds which you can invest in 2021 and secure your portfolio.

List of 10 Types of bonds to invest in 2021

1. Treasury Bonds

Treasury Bonds are treated as risk-free bonds as these are issued by the federal government to finance its budget deficits.

If you are investing in Treasury bonds, then you can expect tax exemption in your income. There are many features which makes these bonds interesting and secure to purchase, some of them are given below

  • Treasury Bonds or commonly Called as T-Bonds are issued by US Govt
  • These Bonds are issued to finance its budget deficits
  • There are four types of debt issued by the U.S Department of the Treasury
    • Treasury Bills
    • Treasury Notes
    • Treasury Bonds
    • Treasury Inflation-Protected Securities or TIPS
  • These bonds are considered risk-free bonds
  • Maturity of Treasury Bond can range from 10 to 30 years.
  • Minimum denomination which is allowed in T-bonds are $1000
  • Interest on these bonds are called coupons
  • Treasury bonds are must when you are building any stable portfolio
  • T-bonds perform better when the economic downturn

2. Mortgage-Backed bonds

A Mortgage-Backed Bonds are more secure bonds which are secured by mortgage or pool of mortgages.

Which means that you will be issue bonds in lieu of real estate holding or real property, typically house.

If the situation worsens, then, these bonds can be sold or underlying properly can be sold off to compensate the bond money.

There are many unique features of these bonds, and they are as follows

  • Mortgage-backed bonds are issued in lieu of real estate holding
  • These are secured by mortgage or pool of mortgages
  • Mortgage-backed bonds face value starts with $25,000
  • These bonds are considered as risk-free and more secure than any other bonds
  • You can expect a good rise in bond price as property price always rises
  • Mortgages or underlying property can be sold off to compensate the bond value
  • Mortgages bonds did not involve in “prepayment risk.”

3. Non-Conventional Bonds

These types of bonds suited to those investors who did not want to risk their hard-earned money. They can invest in non-conventional bonds, which has varying maturity dates with interest rates.

An investor can anytime sell the bonds without waiting for the maturity period of the bonds.

It differs from conventional bonds as those have

  • Fixed-rate of interest
  • Fixed-rate of the face value
  • Fixed interest payment frequency
  • Fixed maturity date

Features of Non-conventional bonds

  • Bonds did not have any fixed rate of interest, face value or payment frequency
  • Bonds did not have any maturity dates
  • Bonds can be linked to commodity prices or stock index
  • Bond is more secure than stocks

4. Corporate bonds

Corporate bonds are issued by big corporate or company which has a higher ranking in Standard & Poor’s and Moody’s Investor Services.

A corporate bond is considered as safer than stock as their prices do not depend on the stock market.

Some of the features of corporate bonds are as follows

  • Corporate bonds or debt security are issued by the big corporation for its investors.
  • It did not depend on the stock market of the company
  • Corporate bonds are backed by company future operation and ability to grow
  • In many cases, corporate bonds can be issued on behalf of physical assets
  • They earn higher interest then-Treasury or agency bonds
  • These bonds are taxable under income tax
  • These bonds can outperform all other bonds when the economy is growing

5. Foreign Bonds

Foreign Bonds as the name indicated as issued by a foreign country (other than the USA). In this bond issues promises to provide

  • Fixed interest payment
  • Return of the principal amount
  • Payment in another country currency
  • These payments are heavily depending on the dollar exchange rate on that given day

Foreign bonds have a third of its assets in foreign country currency-denominated debt. You can expect a good return on these bonds when those country currencies got more stronger than the dollar.

6. Municipal Bonds

Municipal bonds are those bonds which are issued by U.S. states and local agencies or governments. These bonds have many features, and those are given below

  • Municipal Bonds are commonly referred to as the “Munis” bond
  • These can be issued by local agencies as well as local governments
  • These bonds can be divided as investment-grade or high-yield varieties
  • Interest on these bonds is generally tax-free
  • You can add these Municipal bonds in your portfolio to make it more secure
  • Best bond to invest in the growth of local bodies or city

7. Lottery Bonds

These bonds are issued by the United Kingdom’s National Saving and Investment department.

Lottery bonds have some unique features which are as follows

  • Get chance to win a monthly draw for the tax-free cash prize
  • This bond is only for investment purpose
  • This bond did not pay any interest
  • These bonds are backed by the U.K government and are considered as extremely safe
  • These bonds can be brought directly from post offices or form NS&I
  • Bonds can cost £1 or £100
  • Lottery bonds did not give any interest, so these are less preferred bond

8. Zero-Coupon Bonds

Zero-coupons bonds are those type of bonds which did not pay regular interest, but these provide profit when they reach its maturity.

Some of the features of zero-coupon bonds are as follows

  • It is issued at a deep discount to its actual face value
  • It did not pay interest on the bonds
  • It provides profit when you sell it on its maturity
  • You will get full face value on its maturity
  • Zero-coupon bonds can be issued in two ways
    • From the beginning of the start of the bonds
    • Or when some bonds transform into zero-coupons bonds, when financial institution strips all bonds to their coupons
  • This type of bonds is also known as accrual bonds
  • Zero-coupon bonds prices can be fluctuating with time

9. U.S. Government Bonds

Apart from Treasury bonds, the U.S. government also issue Agency Bonds. These types of bonds are issued by a different agency.

Some of the features of Agency bonds are given below

  • Generally, these bonds are known as Agency bonds
  • Bonds are issued by federal national mortgage association or Government national mortgage association
  • These bonds are different from Mortgage bonds which are issued by a similar agency
  • Agency bonds always yield better than treasure bonds
  • Both agency bond and treasury bonds are taxable on interest

10. Adjustment Bonds

Adjustment bonds are high-risk bonds and are issued when any corporation is recapitalized during a bankruptcy proceeding or hearing.

Adjustment bond is issued in exchange for all outstanding debt incurred by the organization.

Interest on adjustment bond depends on the payment made to all outstanding debt and clearing of all obligations.

To issue adjustment bonds, corporate need approval of all existing bondholders.

Final words

So, these are the 10 types of bonds in which you can invest in 2021. We also recommend you all to include at least 20% of bonds in your portfolio to ensure some stability during recession or stock market crash.

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