what is the difference between government bonds and other types of bonds?

Answer 1

Here you go.

Answer 2

Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-
a) Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.
b)Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

Answer 3

The principal and interest paid by government bonds are guaranteed by the government. For this reason, US treasury bills, treasury bonds, savings bonds etc. are the safest kinds of investments.

The other types of bonds are corporate and municipal. Municipal bonds are issued by cities, counties, school districts and other municipalities. The safety of these depends on the rating, AAA are the safest, AA slightly less safe, single A less safe still, and so on. The yield on municipal bonds corresponds with the rating, AAA because the risk is so low, have lower yields than lets say a single A one.

Corporate bonds are issued by companies and like municipal bonds, are rated by independent agencies. Yields on these will vary widely with the ratings.

Hope this helps,
Christopher

Answer 4

All bonds have a credit rating attached to them, given to them by a rating agency such as Moody's or S&P. The bonds issued directly from the federal governement as well as many municipal governments are given the highest AAA rating. This means there is almost no chance the government will default on the payments.

Coorporate bonds are issued from privately owned companies, and carry ratings lower than AAA. Their ratings vary depending on how viable the company is. Because they have a higher risk of default than government bonds, they are issued with higher coupon payments (interest payments), to compensate for this.

You can buy Treasury bonds directly from our government at http://www.treasurydirect.gov with no commissions or expenses.

BTW, all bonds, including municipal bonds, fluctuate in response to interest rate changes. All of them. No exceptions.

Check out more info about bonds in my free eBook at
http://www.invest-for-retirement.com

Answer 5

Government and corporate bonds will have their price fluctuating too much when interest rates change where as Municipal bonds the fluctuation is nil, since it is used by corporate Tressures to minimise cost of capital and they buy these bonds for coupon purpose and the sellers will be willing to part with it only at par value.