The broad universe of bonds
Text on screen: Understanding different types of bonds
There are numerous types of bonds in the investment universe offering a variety of options for fixed income - depending on an investor’s investment objectives and appetite for risk.
Let’s look at three of the most common categories.
Text on screen: Government bonds
Government bonds, or sovereign debt as it’s sometimes called, are issued and backed by a central government. That’s why they are widely considered the safest bond. However, because they have a relatively lower credit risk than other types of bonds, they tend to offer lower yields.
Text on screen: Corporate bonds
Next, let’s look at corporate bonds. These bonds are issued by companies. They fall into two broad categories – “Investment Grade” and “High Yield” depending on their credit rating. Assigned by a credit rating agency, the rating is issued based on the bond issuer’s ability to pay the scheduled interest and principal.
Investment Grade bonds have a higher credit rating than High Yield bonds. But along with a lower risk of default, they also typically offer lower returns.
High Yield bonds, or Junk bonds, offer higher returns in exchange for increased risks, such as the risk of default.
Text on screen: Asset-backed securities
Last up is asset-backed securities. These are bonds that are made up of a diverse range of income-generating assets including mortgages, car loans, credit card debt, leases on aircraft and data centres, and more. The multiple assets are pooled together in a process known as securitisation. Asset-backed securities have a diversified risk profile, as each security only contains a fraction of the total pool of underlying assets. They are complex investments and may not be suitable for all investors, because they come with many risks.
Text on screen: Want to learn more?
We’ve covered just some of the types of bonds available in the broad universe of fixed income, so why not talk to your investment professional today about why investing with PIMCO, a global leader in active fixed income, could help meet your financial goals.