Ratings description for the different categories of fixed income
Corporate bonds
Companies issue corporate bonds to raise capital for various reasons. Sometimes the money is used for expanding the business. Or, proceeds can be used to pay off existing debt and roll out to further maturities These types of securities can even be used to finance buyouts of other companies knows as "leveraged buyouts". Like most debt instruments the yield you get is directly proportional to the risk of the company paying you back your interest as well as the underlying principal upon maturity. Yet another type of corporate bond is called a convertible bond. These debt structures are hybrids of traditional bonds with the ability to convert to equity.
Municipal bonds
States issue municipal or (muni bonds) to finance various projects throughout the state. The yield is tax free (unless you are subject to AMT, the alternative minimum tax). Municipal bonds are especially popular with individuals in higher tax brackets because the tax equivalent yield often outpaces traditional total bond returns for these individuals. Some of these state projects are secured by different revenue streams such as GOs or general obligations which is often a general revenue pool from the state. Others can be used for highway construction and can be secured by future toll revenues from the prospective endeavor etc. It is an efficient way for states to raise a lot of capital, create jobs and reward the private and sometimes public creditors (bond holders).
Treasury bonds
Treasuries or government bonds are issued by countries to finance a variety of undertakings. Just like in municipals and corporates, there are shorter term instruments known as notes and longer maturities as well. Usually the longer the maturity the higher the yield is for a treasury bond and most other bonds as well. Sometimes the yield curve can change and become inverted or more traditional. Most industrialized countries have some form of their own treasury that they issue. If you don't require your yield payments and want to reinvest them for a compounded return "zero coupon bonds" are a structure that offers a bit of a higher yield to maturity. Since you aren't collecting the bond payments, the structure of the zero coupon reinvests those would be interest payments and pays you compounded when the bond matures.
I have outlined the basics and the video but the right does an excellent job of explaining in much more depth the true understanding of these financial instruments. These gentleman have a thorough understanding of how the bond market works and how ratings and cash flow play a role in the structure.
Here we have a seasoned expert giving advice on the fixed income environment and trading possibilities into the summer of 2010. The broker points out we are in an interesting situation as we don't want to shake the global debt and credit markets by raising rates. At the same time we want to protect a sound financial policy going forward so here is his opinion on what to expect.