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A Look at the World of Bonds
All bonds have similarities, but each type also has distinctive characteristics.
You can use the charts below to compare and contrast the five major categories
of domestic bonds that are available to individual investors. You can also invest
in international corporate and government bonds, typically through mutual funds
that invest in those types of bonds.
Corporate Bonds
Corporate bonds are readily available to investors. Companies use them rather than bank loans or new stock issues to finance expansion and other activities.
| Par
Value |
$1,000 |
| Maturity
Period |
Short-term: 1-5 years
Intermediate-term: 5-10 years
Long-term: 10-20 years |
| Trading
Details |
Through brokers, either on an exchange or
over the counter (OTC) |
| Rated |
Yes |
| Tax
Status |
Interest is taxable |
| Call
Provisions |
Sometimes callable |
| Interest
and Safety |
More risk of default than U.S. Treasury bonds, but potentially higher yields than government bonds. Less risk with highly rated bonds, but lower yields that lower rated bonds; usually large minimum investment required. |
Municipal Bonds
More than one million municipal bonds have been issued by states, cities, and other local governments to pay for construction and other projects.
| Par Value |
$5,000 and up |
| Maturity Period |
From 1 month to 40 years |
| Trading
Details |
Through brokers, traded on an exchange or OTS. Some may be available directly from issuer. |
| Rated |
Yes |
| Tax Status |
Interest exempt from federal taxes. Exempt from state and local taxes under certain conditions.1 |
| Call Provisions |
Sometimes callable |
| Interest and Safety |
Lower interest rates than comparable corporate
bonds because of tax-exemption. Especially attractive to high-tax-bracket
investors, who benefit from tax-exemption feature; usually minimum investment
required. |
Treasury Notes
These debt issues of the federal government are a major source of government funding to keep operations running and to pay interest on national debt. The government is no longer issuing 30-year bonds, though they are available in the secondary market.
| Par Value |
$1,000 (issued in amounts up to $1 million) |
| Maturity Period |
2, 3, 5 or 10 years |
| Trading Details |
New issues: Directly through the U.S. Department
of the Treasury
Outstanding issues: Through brokers, OTC |
| Rated |
Not rated, since considered free of default risk |
| Tax Status |
Interest exempt from state and local taxes |
| Call Provisions |
Sometimes callable |
| Interest and Safety |
Maximum safety from default since backed by federal
government, but relatively low interest rates. |
Treasury Bills
Treasury bills are the largest component of the money market – the market for short-term debt securities. The government uses them to raise money for immediate spending at lower rates than notes.
| Par Value |
$1,000 (issued in amounts up to $1 million) |
| Maturity Period |
4 weeks; 13 weeks; 26 weeks |
| Trading Details |
New issues: Directly through the U.S. Department
of the Treasury
Outstanding issues: Through brokers, OTC |
| Rated |
Not rated, since considered free of default risk |
| Tax Status |
Interest exempt from state and local taxes |
| Call Provisions |
Not callable |
| Interest and Safety |
Short-term investments, with no periodic
interest payments. Instead, interest consists of the difference between
a discounted buying price and the par amount paid at maturity. |
Agency Bonds2
The most popular and well known agency issues are the bonds of the government mortgage association, Ginnie Mae. But many federal and state agencies also issue bonds to raise money for their operations and projects.
| Par Value |
$1,000 to $25,000 |
| Maturity Period |
From 30 days to 20 years |
| Trading Details |
Through brokers, OTC or directly through banks |
| Rated |
Some issues rated by some services |
| Tax Status |
Ginnie Mae interest taxable; some other federal agencies' interest exempt from state and local taxes |
| Call Provisions |
Sometimes callable |
| Interest and Safety |
Marginally higher risk and higher interest
than Treasury notes; usually large minimum investment required. |
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On the Trading DeskSM
Join Peter Nulty each Friday as he sits down with a Wells Fargo Advantage Funds portfolio manager to discuss the hot topics of the week.
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