TYPE OF BONDS

Corporate Bonds
- are debt securities issued by financial institutions or companies to fund
their operations.
Companies issue bonds rather than seek bank loans for debt financing in
many cases because bond markets offer more favorable terms and lower
interest rates.
A company can issue bonds just like it can issue stock. Large
corporations have a lot of flexibility as to how much debt they can issue:
the limit is whatever the market will bear. Generally a short-term
corporate bond is less than five years; intermediate is five to twelve
years, and long term is over twelve years.
Corporate bonds are characterized by higher yields because there is a
higher risk of a company defaulting than a government. The upside is
they can also be the most rewarding fixed-income investments because
of the risk the investor must take on. The company's credit quality is
very important: the higher the quality, the lower the interest rate the
investor receives.

Government Bonds
- also called sovereign debt, is a form of debt security that is sold to
investors to support government activities.
Issued by a government to support spending, to balance budgets, or even
to stimulate the economy.

Unlike other investments that have a market risk premium built in, these
bonds are low-risk because they are backed by the full faith and
authority of the issuing government and its ability to print money.
Municipal Bonds
- are debt securities issued by states, cities, counties and other
government entities.
Local governments may also issue bonds to fund projects such as
infrastructure, libraries, or parks. These are known as municipal bonds,
or "munis," and often carry certain tax advantages and exemptions for
investors.
Munis can be thought of as loans that investors make to local
governments, and they are used to fund public works such as parks,
libraries, bridges and roads, and other infrastructure. They may be
funded via local tax dollars or by revenue generated from the project
(e.g. a toll road).
Although municipal bonds may have lower interest rates than riskier
investments like corporate bonds or stocks, they offer some stability and
low default rates.

Mortgage Backed Bonds

- are the bonds which are backed up by the real estate companies and
equipment.
- are secured by a valuable real asset or a set of assets, which protect
bondholders. If the borrower defaults, the mortgage bondholders are
entitled to sell the collateral assets to get the principal paid.

When and how the bondholders can sell the assets, as well as how the
money from the sale is distributed, are determined by the contract terms.
As a result of a lower level of risk, mortgage bonds usually carry lower
interest rates than typical corporate bonds that are not secured by real
assets.

For example, a company borrowed $1 million from a bank and put its
equipment up as collateral. The bank is the holder of the mortgage bond
and owns a claim on the company’s equipment. The company pays
interest and the principal back to the bank through periodic coupon
payments.
If the company meets all the payments, it can retain its ownership of the
equipment. If it cannot fully repay the bank, the bank is entitled to sell
the equipment to recover the money lent.