Bondholders are paid before anyone else, even stockholders and creditors if the company runs into hard times or goes bankrupt. Bonds give you a stream of income based on their rate of return. Bonds are usually much less volatile then stocks are. Bonds also can provide a tax break because municipal and government bonds are sometimes exempt from state and federal taxes. The main disadvantage to bonds is that they generally have lower returns than stocks and mutual funds.
Bonds are like stocks because their prices are sensitive to interest rates as well.
Bonds also carry with them some heavy terminology, which can be confusing and hard to understand. The U.S. Department of Treasury and other federal agencies issue treasuries and federal agency bonds. Treasuries are basically risk free because the U.S. government backs them. They are issued to help finance all of the costs involved in operating the government. Municipal Bonds State and local governments to help pay for schools, streets, highways, hospitals, bridges, airports, and other public works issue municipal bonds.