United States bonds are bonds issued by the U.S. government and its agencies. U.S. Treasury bonds are considered to be the safest type of bonds because they are backed by the full faith and credit of the U.S., which has never missed an interest or principal payment on its debt obligations. Treasury bonds offer correspondingly low rates of return. U.S agency bonds are bonds issued by a federally-owned agency or government-sponsored entities. U.S. agency bonds offer slightly higher returns than Treasury bonds due to the higher degree of risk associated with them. In particular, U.S. agency bonds issued by government-sponsored entities (GSEs) carry a higher risk of default than agency bonds issued by true U.S. agencies. This is because bonds issued by true U.S. agencies are backed by the full faith and credit of the U.S., unlike bonds issued by government-sponsored entities
Municipal bonds are bonds issued by state or local governments or their agencies. Municipal bonds are generally considered to be safer than corporate bonds, but riskier than U.S. Treasury bonds and U.S. agency bonds. Local governments occasionally default on debt obligations. Municipal bonds can be “general obligation” bonds or “revenue” bonds. General obligation bonds are back by the full faith of credit of the local government entity issuing the bond. Revenue bonds are backed by the revenue generated by a specific project funded by the capital raised from issuing the bonds. Revenue bonds have a higher default rate than general obligation bonds
Investments in U.S. and municipal bonds carry potential tax consequences and benefits which should be discussed with a tax professional prior to investing. U.S. and municipal bonds are also rated by credit rating agencies, which seek to measure the risk of investing in a particular bond.
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