What are the different classifications of bonds that bond mutual funds invest in?
Bonds typically are classified in three ways: by issuer, maturity, and quality. Bond mutual funds may invest in one or some combination of these types of bonds. Types of Issuers. The U.S. government sells bonds through the Treasury to finance the national debt and through various federal agencies for special purposes. State and local governments sell bonds to finance projects such as schools, hospitals, highways, bridges, and airports. Corporations sell bonds for various purposes, such as to finance new factories and offices or buy new equipment. Maturity. Maturity refers to the length of time until the principal value of the bond is due to be repaid. Short-term bonds generally mature in two years or less. Long-term bonds mature in more than 10 years. Intermediate-term bonds, as the name implies, mature between short- and long-term debt. In general, the longer a bond’s maturity is, the greater its interest rate risk. Quality. Quality refers to the “creditworthiness” of the issuer; in o
