Unlike stocks, high-quality bonds pay predictable interest each year. This makes them an excellent choice for diversifying your portfolio. When times get rough, high-quality bonds will often hold their value better than equities. In these uncertain times, high-quality bonds are an excellent choice to diversify your portfolio. Here are some reasons to purchase bonds:
The quality of the issuer and its cash flow are two factors that affect the coupon rate of bonds. Bonds that have poor credit are more likely to default. Bonds with long maturities pay higher interest rates because they expose the bondholder to longer interest rate and inflation risks. The highest quality bonds are known as investment grade and include debt from the U.S. government and several utilities. But even though these bonds are high-risk, there are also some pros and cons.