A fixed-income primer

Here is a quick overview of bond types, concepts and terminology.

Bonds are securities representing a debt. When you buy a bond you are essentially loaning money in ex­change for interest payments. Unlike stocks, bonds have a maturity date, when the loan will be paid off.

Treasury securities are issued by the U.S. government and include bonds (long-term), notes (intermedi­ate-term) and bills (up to one year).


Municipal bonds are described in the article to the right.


Corporate bonds are issued by private companies.


Zero-coupon bonds do not pay interest. Rather, they are sold at a discount and redeemed at full value.


Convertible bonds are hybrids in that they may under certain condi­tions be converted into stock.


Some bonds have a variable inter­est rate tied to an inflation index, which protects you from being left behind when rates rise. In exchange for this protection they will pay a lower interest rate than a comparable bond without this feature.


A bond is callable if the issuer has the right to redeem it prematurely. The issuer will often do so if interest rates have dropped and it can refinance at a lower rate.


CDs are usually issued by banks and are FDIC-insured


You can purchase individual bonds either directly from the issuer or on the secondary market. But this car­ries certain risks (see the accompa­nying article to the right). Some of these, such as liquidity or event risks can be mitigated by investing in bond funds or ETFs.