Investors can buy different bond types in their portfolio. It is good having different bond types because of diversification. A portfolio should be properly allocated and diversified. Different bonds offer different risks, maturities, interest rates and terms. Bond types are usually classified according to the issuer but sometimes they are categorized based on their characteristics. A bond issuer can issue bonds of different characteristics. Examples of different bond types are given below.



A corporate bond is a type of bond that is issued by a corporation, rather than a government, an agency or other types of issuers. Again, a corporation can issue bonds with different characteristics which some investors may refer to as different bond types. Corporate bonds are often more risky than bonds issued by the US government and municipal bonds. When investing in bonds you need to pay attention to the bond ratings.

Another type of bonds that are popular among investors is the type issued by the US government. These are called US Treasury bills or T-bills, T-bonds, and T-notes. These three different bond types issued by the government have different maturities. T-bills have the shortest maturity dates whereas T-bonds have the longest. In general, investors like Treasury issues because they are backed by the full faith and credit of the US government.

Other bonds that are quite safe are agency bonds. Agency bonds are bonds issued by agencies related to the government such as Fannie Mae and Freddie Mac. There can also be different bond types issued by agencies and each may or may not be backed by the full faith and credit of the US government. These bonds usually pay higher interest rates than US government bonds and they are usually backed by collaterals such as mortgages and other types of loans.

Many investors buy bonds, not because of safety and regular income but also the tax benefits some types of bonds can offer. Municipal bonds or munis for short are bonds issued by states, local governments, counties, townships, cities, and other municipalities. Municipal bonds are issued to finance projects such as building a bridge and building a road. Different bond types are issued based on the needs of the municipal issuer.

In general, having different bond types in a portfolio is a good thing. However, it is important to choose the bond types well because each bond type comes with different risks and return. An investor needs to find bonds that will offer uncorrelated returns, maturity dates, interest payments as well as risk. In order to increase the bond portfolio yield, higher risk bonds may need to be included but by having different bond types, the risks are lowered.