Bonds are not Boring. Private Investor’s Guide to Bonds.

1. US Treasury Bills (T-Bills): Short-term, zero-coupon US Government securities with maturities up to one year, currently yielding around 5%. They're seen as a lower-risk, higher-yield alternative to bank deposits.

Pros: low risk/volatility, stable returns.
Cons: lower return potential compared to other bond types.
Tips: split liquidity across different maturities.

2. US Treasury Bonds (T-Bonds): Longer-term US Gov securities with maturities of up to 30 years.

Pros: safe, backed by the US government.
Cons: sensitive to interest rate changes; credit rating agencies have downgraded US Debt 1 notch below AAA due to mounting US Gov debt ($34tn, 123% of GDP) and political instability.
Tips: focus on long-term interest rate trends and inflation expectations.

3. Other Government Bonds: Issued by all governments, these can vary widely in risk and return.

Pros: diversification; potentially higher yields depending on the issuing country.
Cons: currency risk; political and economic stability risks.
Tips: assess the political and economic outlook of the issuing country.

4. Investment Grade Corporate Bonds: Issued by financially stable companies, these are seen as a safer bet within the corporate bond market. US IG Corp issuers are currently yielding 150-200bps (+1.5-2%) over T-Bonds.

Pros: higher yields vs government bonds; relatively low risk compared to high-yield bonds.
Cons: subject to credit risk.
Tips: a high-level review of the issuer’s financials and industry trends.

5. High-Yield Bonds: These 'junk bonds' are issued by companies with lower credit ratings (below BBB), offering higher yields to compensate for increased risk. Issuers are often highly leveraged with various types of debt.

Pros: potential for higher returns.
Cons: higher default risk; more volatile.
Tips: deep dive into issuer’s cash flows, ability to cover debt payments, and refinancing options.

6. Distressed Bonds/Debt: Bonds from companies in financial trouble, oftentimes in default, trading at 20%-40% of bond face value. These could potentially return 3-5x the invested amount if the company manages to financially recover / refinance / restructure its debt obligations and/or in case of the bondholders enforcing on company’s assets / collateral / equity and managing to sell it profitably.

Pros: highest potential return.
Cons: high risk of write-off, hard to underwrite.
Tips: understand the issuer’s cash flows, collateral, debt structure, bond prospectus, who are the other bondholders etc. Be ready to participate in bondholder meetings.

As you can see, bonds are far from being “boring”. They offer private investors a spectrum of opportunities, from the relative safety of “risk-free” US Treasury Bonds to the high-risk/reward distressed bonds. Thus, overlooking bonds could mean missing out on an important element for a more balanced, robust, and potentially profitable investment strategy.

What type of bonds do you have in your portfolio? Please share in the comments below.