Bonds & Fixed Income: Your Complete Guide to Bond Investing
Generate Steady Income and Preserve Capital
Bonds represent debt instruments where investors lend money to governments, municipalities, or corporations in exchange for regular interest payments and return of principal at maturity. Often called “fixed income,” bonds provide predictable cash flows, portfolio stability, and diversification from stock market volatility. From ultra-safe U.S. Treasury bonds to higher-yielding corporate debt, the bond market is actually larger than the stock market, with over $130 trillion in outstanding debt globally. Whether you’re seeking retirement income, capital preservation, or portfolio ballast during market turbulence, understanding bonds is essential for balanced investing.
What Are Bonds?
Bonds are loans you make to governments or corporations that promise to repay your principal plus interest over a specified period. Unlike stocks, bonds represent debt, not ownership.
Key Bond Characteristics:
- Face Value (Par): The amount repaid at maturity (typically $1,000)
- Coupon Rate: The annual interest rate paid to bondholders
- Maturity Date: When the principal is repaid (can range from 1 month to 30+ years)
- Yield: The actual return based on current price and coupon
- Credit Rating: Assessment of issuer’s ability to repay (AAA to D)
- Price: Bonds trade above (premium) or below (discount) par based on interest rates
Why Invest in Bonds?
- Predictable Income: Regular interest payments (usually semi-annual)
- Capital Preservation: Principal returned at maturity (if held to maturity)
- Lower Volatility: Less price fluctuation than stocks
- Diversification: Often move inversely to stocks
- Safety: Government bonds backed by taxing authority
- Tax Benefits: Municipal bonds often tax-exempt
- Inflation Protection: TIPS adjust for inflation
The Bond-Interest Rate Relationship:
When interest rates rise, existing bond prices fall (and vice versa). This inverse relationship is fundamental to bond investing.
U.S. Government Bonds (Treasuries)
🏛️ The World’s Safest Investments
U.S. Treasury securities are backed by the full faith and credit of the U.S. government, making them virtually risk-free from default. They serve as the global benchmark for risk-free rates.
📄 Treasury Bills (T-Bills)
Short-term government debt (maturity ≤ 1 year)
T-Bills are sold at a discount and pay face value at maturity (the difference is your return). No periodic interest payments.
Maturities:
- 4-week T-Bills
- 8-week T-Bills
- 13-week T-Bills (3 months)
- 26-week T-Bills (6 months)
- 52-week T-Bills (1 year)
Key Features:
- Minimum investment: $100
- Sold at discount to face value
- Highly liquid
- Exempt from state and local taxes
- Used as cash alternatives
Ideal For: Emergency funds, short-term savings, cash management
Current Rates: Check live T-Bill rates →
View T-Bill Rates & Analysis →
📋 Treasury Notes (T-Notes)
Medium-term government debt (2-10 years)
T-Notes pay interest every six months and return principal at maturity. The most actively traded Treasury securities.
Maturities:
- 2-Year Notes
- 3-Year Notes
- 5-Year Notes
- 7-Year Notes
- 10-Year Notes (benchmark rate)
Key Features:
- Fixed coupon rate
- Semi-annual interest payments
- Minimum investment: $100
- Highly liquid secondary market
- 10-Year Note: Global benchmark for long-term interest rates
The 10-Year Treasury Yield:
The most watched interest rate in the world. Influences mortgage rates, corporate borrowing costs, and stock valuations.
Ideal For: Income generation, intermediate-term investing, portfolio core holdings
Monthly Searches: 823,000 (10-year treasury yield)
📜 Treasury Bonds (T-Bonds)
Long-term government debt (20-30 years)
The longest maturity Treasury securities, offering higher yields to compensate for extended duration risk.
Maturities:
- 20-Year Bonds
- 30-Year Bonds (long bond)
Key Features:
- Highest yields among Treasuries
- Semi-annual interest payments
- Greater price volatility (interest rate sensitivity)
- Lock in rates for decades
Ideal For: Long-term income, retirement planning, liability matching
📈 Treasury Inflation-Protected Securities (TIPS)
Inflation-indexed government bonds
TIPS principal adjusts with inflation (CPI), protecting purchasing power. Interest is paid on the adjusted principal.
How TIPS Work:
- Principal increases with inflation, decreases with deflation
- Fixed coupon rate applied to adjusted principal
- At maturity, receive greater of adjusted principal or original principal
- Interest payments vary as principal adjusts
Maturities: 5-year, 10-year, 30-year
Key Features:
- Inflation protection built-in
- Real yield guaranteed
- Lower nominal yields than regular Treasuries
- Tax treatment complex (taxed on phantom income from principal adjustments)
Ideal For: Inflation hedging, real return assurance, long-term purchasing power protection
When to Buy TIPS:
- When inflation expectations are rising
- When breakeven inflation rate is attractive
- For long-term inflation protection
View TIPS Rates & Breakeven Inflation →
💰 Series I Savings Bonds (I-Bonds)
Inflation-indexed savings bonds for individuals
I-Bonds combine a fixed rate with an inflation rate that adjusts semi-annually. Cannot be traded; must be held at least 1 year.
Key Features:
- Composite rate = fixed rate + inflation rate (adjusted every 6 months)
- $10,000 annual purchase limit per person (electronic)
- $5,000 additional in paper bonds (via tax refund)
- Must hold minimum 1 year
- Penalty: Lose last 3 months interest if redeem before 5 years
- Interest exempt from state/local taxes
- Can defer federal taxes until redemption
When I-Bonds Shine:
- During high inflation periods (recent rates exceeded 9%)
- For guaranteed inflation protection
- Tax-deferred growth for up to 30 years
Ideal For: Individual investors, inflation protection, education savings
📊 Series EE Savings Bonds
Traditional savings bonds with guarantee
EE Bonds pay a fixed rate and are guaranteed to double in value if held for 20 years.
Key Features:
- Fixed rate for 30 years
- Guaranteed to double in 20 years (if interest insufficient, Treasury makes up difference)
- Same purchase limits and rules as I-Bonds
- Lower current yields than I-Bonds typically
Ideal For: Long-term savings with guaranteed minimum return
International Government Bonds
🌍 Sovereign Debt from Around the World
Foreign government bonds offer diversification, currency exposure, and sometimes higher yields, but carry additional risks.
🇩🇪 German Bunds
European safe haven bonds
German government bonds (Bundesanleihen) are considered Europe’s safest sovereign debt.
Key Features:
- Euro-denominated
- European benchmark for safe assets
- Typically lower yields than U.S. Treasuries
- 10-Year Bund widely watched
Risk Considerations: Currency risk (EUR/USD), European economic conditions
🇯🇵 Japanese Government Bonds (JGBs)
World’s lowest yielding sovereign debt
Japan’s massive government debt trades at extremely low (sometimes negative) yields due to Bank of Japan policies.
Key Features:
- Yen-denominated
- Extremely low volatility
- Central bank owns large portion
- Yield curve control by BoJ
🇬🇧 UK Gilts
British government bonds
UK government bonds (gilt-edged securities) from the Bank of England.
Key Features:
- Pound sterling-denominated
- Brexit considerations
- Inflation-linked gilts available
🌏 Emerging Market Sovereign Bonds
Higher yields, higher risks
Government bonds from developing economies offer attractive yields but carry significant risks.
Major Issuers:
- Brazil, Mexico, Turkey, South Africa, India, Indonesia, Philippines
Higher Yields Due To:
- Currency risk
- Political instability
- Lower credit ratings
- Inflation concerns
- Default risk
Ideal For: High-risk tolerance, yield seeking, emerging market exposure
View Emerging Market Bond Yields →
Corporate Bonds
🏢 Lending to Companies for Higher Returns
Corporate bonds are issued by companies to fund operations, expansion, or acquisitions. They offer higher yields than government bonds to compensate for default risk.
Investment Grade Corporate Bonds
Higher quality corporate debt (rated BBB- or higher)
Investment grade bonds are issued by financially stable companies with strong credit profiles.
Credit Ratings:
- AAA: Highest quality, extremely low default risk (very rare)
- AA: High quality, very low default risk
- A: Upper-medium grade, low default risk
- BBB: Lower-medium grade, adequate protection
Characteristics:
- Lower yields than high-yield bonds
- Lower default risk
- More liquid markets
- Institutional quality
Major Issuers:
- Apple, Microsoft, Johnson & Johnson, Berkshire Hathaway, Walmart, ExxonMobil, JP Morgan
Typical Yield Spread Over Treasuries: 0.50% – 2.50% depending on rating and maturity
Ideal For: Income with moderate risk, corporate exposure, Treasury alternatives
View Investment Grade Corporate Bonds →
High-Yield Bonds (Junk Bonds)
Lower quality corporate debt (rated BB+ or lower)
High-yield bonds are issued by companies with weaker credit profiles, offering significantly higher yields to compensate for increased default risk.
Credit Ratings:
- BB, B: Speculative, vulnerable to economic conditions
- CCC, CC, C: Substantial risk, vulnerable to default
- D: In default
Characteristics:
- Much higher yields (3-10%+ over Treasuries)
- Higher default rates (especially during recessions)
- More volatile prices
- Correlate more with stocks than government bonds
- Active management often necessary
When High-Yield Performs:
- Strong economic growth
- Low default rates
- Credit spreads tightening
- Search for yield environments
When High-Yield Struggles:
- Recessions and economic weakness
- Credit spread widening
- Rising default rates
- Flight to safety
Typical Yield Spread Over Treasuries: 3% – 10%+ depending on rating and economic conditions
Risk Factors:
- Company-specific default risk
- Economic sensitivity
- Liquidity risk during crises
- Lower recovery rates
Ideal For: Experienced investors, higher risk tolerance, strong economy periods, yield enhancement
View High-Yield Corporate Bonds →
Corporate Bond Sectors
Financial Sector Bonds:
- Banks, insurance companies, financial services
- Sensitive to interest rates and economic cycles
- Examples: JPMorgan, Bank of America, Goldman Sachs bonds
Industrial Bonds:
- Manufacturing, aerospace, chemicals, industrials
- Economic cycle sensitive
- Examples: Boeing, Caterpillar, 3M bonds
Utility Bonds:
- Electric, gas, water utilities
- Stable cash flows, regulated industries
- Lower yields but higher safety
Technology Bonds:
- Many tech giants have minimal debt and AAA/AA ratings
- Examples: Apple, Microsoft bonds (trade near Treasury rates)
Energy Bonds:
- Oil & gas companies
- Sensitive to commodity prices
- Higher risk in high-yield space
Explore Corporate Bonds by Sector →
Municipal Bonds (Munis)
🏛️ Tax-Free Income from State and Local Governments
Municipal bonds are issued by state and local governments to fund public projects. Interest is typically exempt from federal taxes and often state/local taxes.
General Obligation Bonds (GO Bonds)
Backed by taxing authority
GO bonds are backed by the full faith, credit, and taxing power of the issuing municipality.
Key Features:
- Backed by general tax revenues
- Higher safety (can raise taxes to repay)
- Voter approval often required
- Lower yields than revenue bonds
Examples:
- State general obligation bonds
- City and county GO bonds
- School district bonds
View General Obligation Bonds →
Revenue Bonds
Backed by specific project revenues
Revenue bonds are repaid from revenues generated by the specific project being financed (tolls, fees, charges).
Types:
- Water and Sewer Bonds: Utility fee revenues
- Transportation Bonds: Tolls, fares
- Hospital Bonds: Patient revenues
- Housing Bonds: Rental/mortgage payments
- Higher Education Bonds: Tuition, fees, dorm revenues
Key Features:
- Backed only by project revenues (not taxes)
- Higher yields than GO bonds
- Project-specific risks
- No voter approval required typically
Tax Treatment of Municipal Bonds
Federal Tax Exemption:
- Interest generally exempt from federal income tax
- Capital gains still taxable
State Tax Exemption:
- Bonds from your state often exempt from state taxes
- Out-of-state munis typically subject to state taxes
Tax-Equivalent Yield:
Calculate what a taxable bond must yield to equal a tax-free muni:
Formula: Tax-Equivalent Yield = Muni Yield ÷ (1 – Tax Rate)
Example:
- 4% muni yield
- 35% tax bracket
- Tax-equivalent yield = 4% ÷ (1 – 0.35) = 6.15%
Ideal For: High-income investors, high tax brackets, state tax considerations
Municipal Bond Credit Ratings
Investment Grade:
- AAA/Aaa to BBB/Baa
- Most munis are investment grade
- Very low default rates historically
Below Investment Grade:
- Rare among munis but exist
- Distressed municipalities
- Higher yields
Default Risk Considerations:
- State fiscal health
- Tax base strength
- Pension obligations
- Economic conditions
View Muni Bond Ratings & Analysis →
Bond Funds & ETFs
📊 Diversified Bond Exposure Without Buying Individual Bonds
Bond funds and ETFs provide instant diversification, professional management, and liquidity without the complexity of buying individual bonds.
Government Bond Funds
Treasury Funds:
- Short-Term Treasury ETFs: 1-3 year duration (SHY, SPTS)
- Intermediate Treasury ETFs: 3-10 year duration (IEF, IEI)
- Long-Term Treasury ETFs: 10+ year duration (TLT, TLH)
- TIPS Funds: Inflation-protected (TIP, SCHP)
Total Bond Market Funds:
- AGG (iShares Core U.S. Aggregate Bond): Most popular, broad exposure
- BND (Vanguard Total Bond Market): Low-cost broad bond market
- SCHZ (Schwab U.S. Aggregate Bond): Another low-cost option
Corporate Bond Funds
Investment Grade:
- LQD: iShares iBoxx Investment Grade Corporate
- VCIT: Vanguard Intermediate-Term Corporate
- USIG: iShares Broad USD Investment Grade Corporate
High-Yield Funds:
- HYG: iShares iBoxx High Yield Corporate
- JNK: SPDR Bloomberg High Yield Bond
- HYGH: iShares Interest Rate Hedged High Yield
Municipal Bond Funds
National Muni Funds:
- MUB: iShares National Muni Bond (broad market)
- VTEB: Vanguard Tax-Exempt Bond (national)
- TFI: SPDR Nuveen Bloomberg Municipal Bond
State-Specific Muni Funds:
- Double tax-free for residents (federal + state)
- Examples: New York, California, Pennsylvania munis
- Higher expense ratios typically
International Bond Funds
Developed Market Bonds:
- BNDX: Vanguard Total International Bond
- IAGG: iShares Core International Aggregate Bond
Emerging Market Bonds:
- EMB: iShares JP Morgan USD Emerging Markets Bond
- EMHY: iShares Emerging Markets High Yield Bond
View International Bond Funds →
Specialty Bond Funds
Floating Rate Bonds:
- Rates adjust with short-term rates
- Protection against rising rates
- Examples: FLOT, FLRN
Preferred Stock Funds:
- Hybrid security (stock/bond characteristics)
- Higher yields, equity risk
- Examples: PFF, PGX
Convertible Bond Funds:
- Convert to stock under certain conditions
- Participation in stock upside
- Examples: CWB, ICVT
📚 Bond Investing Education
Understanding Bond Basics
For Beginners:
- How bonds work and terminology
- Bond vs. bond fund: which to choose?
- Understanding yield vs. price relationship
- Credit ratings explained
- How to buy bonds (TreasuryDirect, brokers)
- Bond laddering strategies
For Intermediate Investors:
- Duration and interest rate risk
- Yield curve analysis and implications
- Credit spread analysis
- Tax considerations for bonds
- Bond portfolio allocation
- Callable bonds and prepayment risk
For Advanced Investors:
- Active vs. passive bond strategies
- Yield curve positioning
- Credit analysis fundamentals
- Duration management and hedging
- International bond investing
- Fixed income derivatives
Access Bond Education Center →
📊 Bond Analysis Tools
Key Bond Metrics
Yield Measures:
- Current Yield: Annual coupon ÷ current price
- Yield to Maturity (YTM): Total return if held to maturity
- Yield to Call (YTC): Return if bond called early
- Yield to Worst (YTW): Lowest potential yield
Risk Measures:
- Duration: Sensitivity to interest rate changes (1% rate rise = duration% price decline)
- Convexity: Rate of change of duration
- Credit Spread: Yield over comparable Treasury
- Default Probability: Statistical likelihood of default
Valuation:
- Present value of future cash flows
- Credit analysis (financial ratios, coverage)
- Relative value vs. similar bonds
Important Data Sources
Economic Indicators:
- Federal Reserve policy and statements
- Inflation data (CPI, PCE)
- Employment reports (impact interest rates)
- GDP growth
- Treasury auctions and demand
Bond Market Data:
- Yield curves (normal, inverted, flat)
- Credit spread trends
- Trading volumes
- New issuance calendar
🔔 Real-Time Bond Data
What We Provide:
- Live Yields: Real-time Treasury, corporate, and muni yields
- Yield Curves: Interactive Treasury yield curve visualization
- Credit Spreads: Investment grade and high-yield spreads
- Bond Prices: Individual bond pricing and availability
- Economic Calendar: Fed meetings, inflation data, employment
- Auction Results: Treasury auction results and demand metrics
- News Feed: Fixed income news and analysis
- ETF Prices: Bond fund and ETF real-time prices
💡 Bond Investment Strategies
Bond Laddering
Build a portfolio of bonds with staggered maturities (e.g., 1, 2, 3, 4, 5 years). As each bond matures, reinvest at current rates.
Benefits:
- Reduces reinvestment risk
- Provides regular liquidity
- Averages interest rate risk
- Steady income stream
Barbell Strategy
Invest in short-term and long-term bonds, avoiding intermediate maturities.
Benefits:
- Liquidity from short-term
- Yield from long-term
- Flexibility to adjust
Bullet Strategy
Concentrate bonds maturing around the same future date (e.g., funding a specific goal).
Use Case: College tuition in 10 years, retirement in 15 years
Duration Matching
Match bond portfolio duration to investment time horizon or liabilities.
Use Case: Pension funds, insurance companies, liability-driven investing
Total Return Approach
Actively manage for price appreciation and income, not just holding to maturity.
Tactics:
- Interest rate positioning
- Credit selection
- Sector rotation
- Yield curve positioning
⚠️ Bond Risk Considerations
Interest Rate Risk:
- Bond prices fall when interest rates rise
- Longer maturity = greater sensitivity
- Measured by duration
Credit Risk:
- Issuer may default on payments
- Corporate and muni bonds carry credit risk
- Treasuries essentially credit-risk-free
Inflation Risk:
- Fixed payments lose purchasing power
- Real return = nominal yield – inflation
- TIPS and I-Bonds mitigate this
Liquidity Risk:
- Some bonds difficult to sell quickly
- Bid-ask spreads can be wide
- Corporate and muni bonds less liquid than Treasuries
Call Risk:
- Issuer may redeem bonds early when rates fall
- Reinvestment at lower rates
Reinvestment Risk:
- Maturing bonds or coupons reinvested at lower rates
- Particular concern in falling rate environment
Currency Risk:
- International bonds subject to exchange rate fluctuations
📈 Bond Allocation Guidelines
Conservative Portfolio (Capital Preservation)
- 70-80% Bonds: Short to intermediate-term, high quality
- 20-30% Stocks: Diversification
- Focus: Treasuries, investment grade corporates, high-quality munis
Moderate Portfolio (Balanced)
- 40-60% Bonds: Mix of durations
- 40-60% Stocks: Growth potential
- Focus: Total bond market, some corporate bonds
Aggressive Portfolio (Growth)
- 20-30% Bonds: Stability and ballast
- 70-80% Stocks: Growth emphasis
- Focus: Short-term bonds for liquidity, minimal interest rate risk
Retirement Income Portfolio
- 50-70% Bonds: Income generation
- Bond ladder for predictable cash flow
- Focus: Investment grade corporates, Treasuries, municipal bonds
📱 Stay Connected
- Yield Alerts: Track Treasury and corporate yields
- Fed Announcements: FOMC meeting results and statements
- Economic Data: Inflation, employment, GDP releases
- Auction Calendar: Upcoming Treasury auctions
- Credit Rating Changes: Upgrades and downgrades
- Newsletter: Weekly bond market insights
Disclaimer
Bond investments carry risks including interest rate risk, credit risk, and inflation risk. Bond prices and yields move inversely—when yields rise, prices fall. Individual bonds held to maturity return principal (assuming no default), but bond funds have no maturity date and fluctuate. Past performance does not guarantee future results. This information is for educational purposes only and should not be considered investment advice. Consult with a qualified financial advisor before making investment decisions.
Ready to build your fixed income portfolio? Explore Treasuries, corporate bonds, municipal bonds, and bond funds to generate income and diversify your investments.