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.
© 2004 by Lightbulb Press, Inc. All Rights Reserved.
This information is provided by Lightbulb Press, Inc. and does not express the views of Wells Fargo or any of its affiliates. Wells Fargo is not responsible for the accuracy, completeness, or correctness of the information provided by Lightbulb Press, Inc. or other third parties.

This information is provided with the understanding that the authors and publishers are not engaged in rendering financial, accounting or legal advice, and they assume no legal responsibility for the completeness or accuracy of the contents. Some charts and graphs have been edited for illustrative purposes. The text is based on information available at time of publication. Readers should consult a financial professional about their own situation before acting on any information. Lightbulb Press, Inc., 112 Madison Avenue, New York, New York, 10016, Tel: 212-485-8800, www.lightbulbpress.com.

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