Bonds are issued by organizations and municipalities to raise money when they need to implement new services, build new structures, or add to their educational curriculum. Not all these, however, are high credit rated bonds.
High credit rated bonds are investment graded bonds measured and analyzed by agencies such as Moody’s Investors Service, Standard & Poor’s ratings services for Fitch ratings. These are not necessarily high-yield bonds; the difference between high credit rated bonds and high-yield bonds is the security of being rated an agency, or not having been rated by them. These agencies keep a watch on private corporations and what is going on in the biggest game in town (New York) namely on Wall Street.
The high-yield comes from the bigger chance takers who blindly buys bonds when there’s no guarantee that they will get their money back. The issuers of these bonds are using the buyer’s money to implement the necessary changes they are undertaking. They promise you a certain amount of the money when the bonds mature at a later date say 10 or 20 years hence. What’s in it for the investor? You by the bond at a lesser price than the actual value of the bond at maturity, the price you will get when you cash it in.
Bonds are graded accorded to whether they range from “speculative to a very high credit rating.” Those rated medium, according to Fidelity are known as investment quality bonds. Those below that scale are usually high-yield bonds or as more commonly known, junk bonds. When a company is rated highly, they are given an AAA rating, and as they slip downward or letter grade sliding downward from that they are given a corresponding letter grade. Of course those in the lower brackets are given a C or a D; high-yield bonds are in this category since the greater the risk, greater amount of money earned or lost.
Government-backed bonds are usually pretty secure although they aren’t rated by Standard & Poor’s or Moody’s or any other rating system. U.S. Treasury issues are among the safest way to invest and not have to worry over the organization folding or going bankrupt and leaving you holding worthless bills or notes. Each country has their own type of government issues, but in the U.S. these are usually safe bets. Of course since 2008 and the economy going downhill, there have been changes in the way investors invest.
Prior to this time Agency Bonds such as Government National Mortgage Association (Ginnie Mae) and the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation was doing a great business. They were abused by those who got in debt over their head and by those who sold indiscriminately. A government bailout kept them afloat, but lessons in investing have been learned.
By far the most common bonds with government regulations are municipal and corporate bonds as regulated by the government. These debts bought by investors build bridges, and other infrastructures and is what keeps them repaired and in good working order.