Vanguard bond：What is a Bond and How do they Work?

Types of bonds

Companies can issue bonds, but most bonds are issued by governments. Because governments are generally stable and can raise taxes if needed to cover debt payments, these bonds are typically higher-quality, although there are exceptions. 

U.S. Treasuries

These are considered the safest possible bond investments.

Youll have to pay federal income tax on interest from these bonds, but the interest is generally exempt from state tax. Because theyre so safe, yields are generally the lowest available, and payments may not keep pace with inflation[1]. Treasuries are extremely liquid[2].

Certain types of Treasuries have specific characteristics:

Treasury bills have maturities of 1 year or less. Unlike most other bonds, these securities dont pay interest. Instead, theyre issued at a "discount"—you pay less than face value when you buy it but get the full face value back when the bond reaches its maturity date. Treasury notes have maturities between...