Zero coupon bonds can be useful for eliminating interest rate risk. Other Characteristics of Debt Debt is not an ownership interest in the firm and creditors usually do not have voting power. Interest on bonds is deductible for tax purposes. Call provisions give the issuer the right to repurchase part or all of the issue prior to maturity. Another risk associated with bonds is default risk .
Default risk is the risk that borrowers fail to make all the promised payments.
The highest rated bonds are called investment grade. Bonds rated below investment grade are called junk bonds . The biggest issuer of bonds is the U.S. government. State and local governments also issue bonds. These bonds are municipal bonds.