Let’s Talk About Different Types of Bonds
What are bonds? In basic terms, a bond is a loan from an investor to a borrower such as a company or government. The borrower uses the money to fund its operations, and the investor receives interest on the investment. The market value of a bond can change over time. Types of bond loans On the basis of interest rates: 1. Fixed rate bonds A fixed rate bond is a bond that pays the same level of interest over its entire term. An investor who wants to earn a guaranteed interest rate for a specified term could purchase a fixed rate bond in the form of: 1. Treasury 2. Corporate bond 3. Municipal bond 4. Certificate of deposit (CD) If market interest rates rise or the financial health of the issuer deteriorates, investors may demand a greater yield and the price of the bond will generally fall. 2. Floating bond rates A floating-rate note (FRN) is a debt instrument with a variable interest rate. The interest rate for an FRN is tied to a benchmark rate. Benchmarks incl