There are several categories of bonds, each with different risk and return characteristics:
Government Bonds
Issued by national governments (such as UK Gilts), these are generally considered lower risk, especially when issued by stable economies.
Corporate Bonds
Issued by companies to finance operations or expansion. These typically offer higher yields than government bonds but carry greater credit risk.
Investment-Grade Bonds
Issued by entities with strong credit ratings, indicating lower default risk.
High-Yield (Junk) Bonds
Issued by companies with lower credit ratings. These offer higher potential returns but involve higher risk.
Inflation-Linked Bonds
Designed to adjust payments in line with inflation, helping to preserve purchasing power.
Understanding the type of bond you are investing in is essential for aligning it with your risk profile and financial goals.