Many people consider bonds to be very secure investments and without any risk. However, that is not completely true. Every investment carries some risk. There are several risks which need to be considered: interest rate risk – which is all about fluctuations in the rates of interest, the risk of default – which depends upon creditworthiness of the issuer, call risk, purchasing-power risk, reinvestment rate risk and so on.

Let’s take a look at a scale of risky bonds:

1. U.S. Treasury Agency – very low risk
2. Municipal bonds – low risk
3. Corporate bonds – medium risk
4. Foreign bonds – high risk
5. Unrated bonds – very high risk

There are grades which are appointed to bonds and they describe their power. For example, there is S&P – AAA which actually tells us that the risk is very low. On the other side, there is S&P – BBB-, which tells us that the risk is very high.