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Bonds

A bond certifies that an investor has loaned money to a government, municipality, or corporation in exchange for regular fixed interest payments and repayment of principal at a specified future date. Bonds are generally considered less volatile than stocks. If a company goes bankrupt, its bondholders have a prior claim on any remaining assets, ahead of preferred or common stockholders, and after general creditors.

Bond prices fluctuate on the open market, in line with the general up and down movements of interest rates. Held to maturity, bonds return full face value. Maturities vary from less than one year to as many as 30 years.


Types of Bonds

U.S. Government Bonds
  • U.S. Treasury securities, including bills, notes and bonds, are the most secure of all debt obligations because they are backed by the full faith and credit of the U.S. Government.
  • Treasury bills, commonly called T-bills, are issued with terms of three, six or 12 months.
  • T-bills are sold at a discount and return full face value at maturity while Treasury notes and bonds pay fixed interest semi-annually.
  • All interest from Treasury securities is exempt from state and local taxes.
  • You may purchase T-bills at auction directly through the Federal Reserve or through brokers.
Municipal Bonds
  • Municipal bonds are issued by state and local governments.
  • Municipal bonds pay for public projects.
  • General Obligation bonds are considered second only to Treasury securities in safety.
  • Municipal bonds are usually rated for quality and may be insured as well.
  • These bonds hold special appeal for investors in high income tax brackets because interest is exempt from federal taxes.
  • Because they are tax advantaged, municipal bonds pay lower interest rates than comparable corporate bonds, but tax advantages can give them a higher effective yield.
Corporate Bonds
  • Companies issue corporate bonds to raise cash for expansion, modernization, research and development, or other expenses.
  • Corporate bonds pay higher yields than U.S. Government bonds, but they also carry more risk.
  • Semi-annual interest payments are fully taxable.
  • Corporate bonds usually carry assigned ratings that indicate quality and degree of inherent risk.
  • These bonds return full face value at maturity and may be callable by the corporation at a predetermined value.

Generally, bond prices and values fall when interest rates rise, and vice versa. This effect is usually more pronounced for longer-term securities. Bonds will tend to experience smaller fluctuations in value than stocks. However, investors in any bond should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates.


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To arrange a meeting with an Investment Counselor call 800-453-7348.

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BB&T Investment Services, Inc.
200 S. College St., 8th floor
Charlotte, NC 28202

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