The 30-Year: It's a 30-year piece of paper guaranteed by the full faith and credit of the U.S. government's ability to tax its hard-working citizens. You write a check to the government giving it cash. They give you a promise to pay you interest twice a year for 30 years, at which point they then give you back the principal, or your original investment. These bonds are taxed at the ordinary income rate, as if adding salt to a low interest wound.
Related or Semi-related Video
Finance: What are Bond Ratings, and What...68 Views
- a la shmoop. what our bond ratings and what do they mean?
all right well pressed, we'd say Sean Connery,
but Daniel Craig has been pretty amazing and exceeded all expectations right? okay [Actors Connery and Craig shown]
okay so we love double-oh-seven but well that has nothing to do with this topic.
here we're referring to how risky or safe a given bond is. if you just landed
on earth remember that a bond is a promise to pay back money after having
rented it in the form of interest payments for a given period of time. and
some bonds are well ,they're risky. famously the bonds issued by the
territory of Puerto Rico went crashing to the ground when the country [Puerto Rican city pictured waving a white flag]
essentially declared bankruptcy in 2017. well corporate bonds die as well as
government bonds. when the internet and wireless technology radically changed
the economics of the radio and newspaper industries well many of those
corporations saw their bonds kissed the perimeters of bankruptcy. so bonds can be
risky despite the vast 99% plus of them who fully pay back their interest and
principal on schedule. but some don't though or have to delay payments or have
other issues and to account for this risk and to communicate that risk to [two workers from Chase bank stand hands on hips shaking heads]
would-be investors, there are rating services who assess the borrower's
ability and likelihood to pay back the money they have promised to the you know
pay back. well the top ratings are shown here,
those triple-a bonds are a really good ones. if a bond flunks completely well it
gets something in the C range. that we have California grade inflation here and [bond rating chart pictured]
you know talk about grading on a curve. and that is how you get your bonds
shaken and not stirred. [man holds martini glass]
Up Next
What are T-Notes, T-Bonds, and TIPS? T-Notes are debt securities (like bonds) that are issued by the government and mature within one to 10 years....
What are general obligation, revenue and double-barreled bonds? General obligation bonds are backed by the place that issued them. So rather than b...
What are high yield/junk bonds? Junk bonds are called junk for a reason. They are really risky, but because of this risk, they can pay very well. T...
What are Treasury Bills? Like other debt finance platforms, the US government issues its debt in several ways, and has different terms for each. Tr...