Despite the video’s brevity in explaining the different types of bonds particularly those that exist

in United States, it still gave a substantial heads up about the basic types of bonds specifically
government securities, government agency issues, municipal bonds, and corporate bonds.
Governments need money to operate and, just like people and businesses, they will borrow
money when needed. Thus, the loans or debt securities issued by governments are called
1
government securities. For this type, I learned that they are backed by the full faith and credit
of the government. With this, it can be implied that government securities can be considered as
low-risk investments since they have the backing of the government that issued them. However,
as mentioned in one of our discussions, these securities may pay a lower rate of interest than
corporate bonds. Government securities also have their sub types namely savings bonds and
treasury issues. Treasury bills, treasury notes, treasury bonds and treasury inflation-protected
securities also known as TIPS fall under the category of treasury issues.
The second type of bond mentioned in the video is 2government agency issues. Basically, these
are bonds and notes issued by government-sponsored enterprises or GSEs, including Fannie
Mae, Freddie Mac and the Federal Home Loan Bank if we contextualize it in the U.S. Since it is
issued by a wide variety of sources, then it’s safe to conclude that government agency issues are
issued in a variety of structures, coupon rates and maturities.
Third is the 3municipal bonds. Municipal bonds are securities issued by cities, states, school
districts and other entities to fund public works or projects such as such as roads, bridges,
daycare centers, sea ports and other infrastructure. Some of these bonds are tax advantaged such
as being exempt from federal taxation and often from state and local taxes. Thus, so long as the
taxes are significant, there is an advantage to buying municipal bonds. However, when tax rates
decline, the value of holding municipal bonds along with their prices also declines. Municipal
bonds have two sub types which are 1) general obligation bonds which are often issued for
public utilities and are backed by the taxing authority of the issuer, and 2) revenue bonds which
are typically backed by fees associated with the use of the funded project like a public
transportation.
Lastly, let’s talk about the fourth type of bond mentioned in the video which are 4corporate
bonds. Corporate bonds, from the word itself, are debt securities issued by corporations to build
capital and sustain the corporation’s ongoing needs. They are backed by the credit of the issuer
and as a result, a corporation’s ability to repay their bond investors is strongly tied to its success.
It was also mentioned in our previous discussions that compared to government securities,
corporate bonds pose higher risk because of the possibility that the company may encounter
bankruptcy and/or insolvency hence they won’t be able to pay their outstanding obligations and
that may include the debt securities they issue.
Generally, for whatever type of bond that one wishes to issue, it is inevitably necessary to
understand the understand and examine the risks and benefits of every type. Perhaps the video,
on its end, sent a message for every person who is about to or is an issuer of bonds that he or she
should assess his/her liquidity needs, investment horizon and risk tolerance. To add, an issuer
should also assess his/her financial strength predicting the different outcomes or changes of
his/her financial environment. When all of these things are sufficiently done, then you can
effectively determine which investments are right for you.