Bonds are a popular financial instrument used by both individual and institutional investors to earn regular income. Bonds can be issued by corporations, governments, or other entities in order to raise capital for various projects. The bond issuer agrees to pay a fixed rate of interest over the life of the bond as well as repay the principal at maturity.
There are several types of bonds available in today’s market: government bonds, corporate bonds, municipal bonds, mortgage-backed securities (MBS), asset-backed securities (ABS) and zero coupon bonds. Government and corporate bonds are typically viewed as safe investments since they have lower default risk than other kinds of debt instruments such as structured products or derivatives. Municipal bonds tend to offer higher yields but also come with greater risks such as variable interest rates and potential tax implications for some investors due to their state/local governmental nature. MBSs represent pools of mortgages bundled together into one security; this type of investment is often favored by more sophisticated investors looking for higher returns from illiquid assets backed by real estate collateral rather than cash flows from an operating business entity like most publicly traded stocks or ETFs do. ABSs generally involve securitization processes where multiple loans such as auto loans and student loans may be pooled together into one security that pays periodic payments based on underlying loan performance instead of through traditional methods like dividend distributions or stock buybacks associated with equities investing strategies . Finally zero coupon bonds provide no current return but promise repayment at par value plus accrued interest when it matures without any intermediate payment along its lifespan which makes them attractive options for long term savers wanting guaranteed returns since there’s less volatility involved here compared against equity markets’ daily gyrations throughout trading sessions around the globe every day!
