Debentures are backed by the general credit of the corporation. Asset-backed bonds are backed by specific corporate assets like property or equipment. Municipal Bonds Millions of bonds have been issued by state and local governments. General obligation bonds are backed by the full faith and credit of the issuer, and revenue bonds by the earnings of the particular project being financed. Investors use T-bills for part of their cash reserve or as an interim holding place.
Interest is the difference between the discounted buying price and the amount paid at maturity.
The going interest rate at Treasury auctions and the price of long-term bonds in the secondary market are used as benchmarks of investor attitudes toward the economy. Treasury bonds are considered as good as gold. Any bond rated Baa or higher by Moody's, or BBB or higher by Standard and Poor's, is considered investment quality. Usually, the higher a bond's rating, the lower the interest it must pay to attract buyers. Investors willing to take risks for high yields buy corporate or municipal bonds with low ratings or no ratings at all commonly known as junk bonds.