Bond Varieties

Not all bonds are created equal. Treasury bonds are issued by the U.S. government — ultra-safe, lower yields. Corporate bonds come from companies and pay more interest because there is more risk the company could default.

Municipal bonds are issued by cities and states, and their interest is often tax-free at the federal level. Then there are junk bonds (officially "high-yield") — issued by riskier companies that pay significantly higher interest to attract buyers. As a rule, higher potential returns come with higher risk.