Bond ratings are provided by different rating services such as Moody's, Fitch, and Standard & Poor's. These companies pour over a companies financials and look at the credit. Government bonds and Treasuries are not subject to credit quality ratings because they are considered to be of the highest investment quality.

Standard and Poors uses the following ratings for bonds;

AAA and AA: High credit-quality investment grade
AA and BBB: Medium credit-quality investment grade
BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or junk status
D: Bonds that are in default for non-payment of principal and/or interest

Treasury bills. Treasury Bills (T-bills) are short-term securities which mature in either 13, 26 or 52 weeks from the date they were issued. Treasuries are sold on a discount basis meaning the investor pays a price lower than the face value and, upon maturity, receives the face value. T-bills are sold in a minimum increment of $10,000, with multiples of $5,000 available above the minimum.

Agency issues. Agency issues represent bonds issued by federal agencies and government-guaranteed agencies. Federal agencies include the Export-Import Bank, the Government National Mortgage Association (GNMA), and the Federal Housing Authority (FHA). Government-guaranteed agencies include Banks for Cooperatives and Federal Home Loan Banks, are not guaranteed by the U.S. government however they raise money under the Treasury's supervision. They mostly concentrate their activities in farm credit and housing.

Treasury Inflation-Protection Securities (TIPS). Inflation is the greatest risk that bonds will face. Lon-term bond investors in particular can lose a substantial portion of the purchasing power of their invested funds sue to a gradual increase in prices. TIPS can help solve this problem. TIPS are marketable, book-entry debt securities, issued by the U.S. Treasury. They are sold by the government at a quarterly auction, in minimum amounts of $1,000. They carry a fixed annual interest rate, and pay interest two times a year. The inflation protection is provided by adjusting the principal amount of the security according to changes in the inflation rate. The semiannual interest payment is then calculated based on the adjusted principal amount. The inflation-adjusted principal is paid at maturity.

Municipal bonds are issued by states, counties, school-districts, towns, and airports. In general, interest paid on municipal bonds is exempt from both federal and local income taxes within the state of issue. Municipal bonds fall into two areas: general obligation and revenue bonds.

General obligation bonds are backed by the full faith, credit, and taxing power of the issuing government agency. Investors can purchase state issues backed by the state government, city bonds backed by the municipality, or a variety of other bonds, which are usually backed by the county government.

Revenue bonds are dependent on the income from the issuing governmental unit or project to meet the interest and principal payments. These can include bonds issued to finance toll roads, hospitals, airports, bridges, tunnels, and sewer projects.

Federal Funds a market among commercial banks in which banks that need a short-term loan in order to meet regulatory reserve requirements are able to borrow from banks with excess funds. The Federal Funds rate is the interest rate charged on such loans.

Federal Reserve Board the governing body of the Federal Reserve System, which regulates certain banks and is charged with setting national monetary policy.

Funds Borrowed are Federal Funds (free reserves borrowed from other banks), securities sold under Repurchase Agreements ("repos"), commercial paper sold by bank holding companies and non bank subsidiaries, and any other non deposit sources of short-term funds.

Money Supply Federal Reserve measures of money outstanding. The Federal Reserve is able to influence increases or decreases in the size of the money supply. If money supply grows significantly faster than overall economic growth for an extended period of time, higher rates of inflation often follow. If money supply grows too slowly, economic growth is inhibited.

Yield Curve is a measure of the relationship between short-and long-term interest rates. Often the yields on three-month Treasury bills and 30-year Treasury bonds are compared. The yield curve is said to be positive when long-term rates are higher than short-term rates. When short-term and long-term rates are about equal, the yield curve is said to be flat. The yield curve is said to be inverted when short-term rates are higher than long-term rates.

Yield-Cost Margin  in the banking industry is the difference between interest rates earned (on loans and other earning assets) and interest rates paid (on deposits and other sources of funds).

Corporate bonds are issued by corporations. Bondholders must be paid interest on their principal before before dividends can be paid to the stockholders. If a corporation is forced to liquidate because business failure, then the bondholders must be repaid before the stockholders can receive any payment. Corporate bonds can be secured or unsecured. A secured bond means that the issuer backs its promise to pay the interest and principal by pledging specific property to the bondholders as collateral. An unsecured bond only promises to pay the stated interest and principal.

Below are some of the types of secured and unsecured bonds:

Debentures. A debenture is unsecured and is backed only by the faith and general credit of the issuing company.

Guaranteed Bonds. A guaranteed bond has interest or principal, or both, guaranteed by a company other than the issuer. The railroad industry uses this kind of bond when larger railroads, leasing sections of track owned by small railroads, guarantee the bonds of smaller railroads.

Mortgage Bonds. A mortgage bond is a debt obligation secured by a mortgage on property. The value of the property may or may not equal the value of the mortgage bond issued against it. Because these securities are usually issued by large utilities, they comprise a major percentage of the corporate bond market.

Convertible Bonds. Convertible bonds may be exchanged by the owner for common stock or another security that is part of the same company.

Callable Bonds. A callable bond has a set maturity date however it can be redeemed after the bondholders have been notified by the issuer at specified periods. The call feature is stated in the original offering prospectus. The call feature will usually be exercised if the current market rates are less than the coupon rate.

Junk Bonds. Corporate bonds rated below Baa by Moody's or below BBB by S&Ps are considered junk bonds. Bonds with higher ratings are considered to be quality bonds. Junk bonds sell well below par because they carry substantial default risk. Junk bonds offer a higher yield, reflecting the substantial default risk they carry.

The term junk originates from the investment community's belief that when economic conditions are poor, these bonds will suffer a significant drop from their par value and show a substantial paper loss.

Passbook savings accounts are the most common example of fixed-income investments. NOW, or SUPER NOW, accounts (Negotiable Order of Withdrawal) are interest-paying checking accounts that restrict the number of permitted checks, similar to conventional savings accounts, and are insured by the FDIC up to $100,000.

Certificates of Deposit (CDs). CDs are available from banks and savings and loans. The minimum amounts are usually $500 for regular CDs and $100,000 for jumbo CDs. Time periods usually range from six-month increments to five years. The promised rate of interest on a CD is higher than for passbook savings, and the rate increases with the length of deposit of the CD.

Money market funds provide a very high stability of principal (usually at $1.00)while seeking a moderate to high current income. They invest in highly liquid and nearly risk-free, short-term debt securities of agencies of the U.S. government, banks and corporations, and Treasury bills. These funds have no potential for capital appreciation.