Fixed Income Investments That Fall in Between Treasuries and Corporate Bonds

Today, treasury bonds do not have high yields and corporate bonds are risky. There is, however, a middle tier of fixed income investments. These securities have higher yields than treasuries, but aren't as risky as corporate bonds.

These investments fall in four categories:

1. Ginnie Mae - This government agency creates securities out of mortgages originated by federal agencies - including the Federal Housing Administration and Department of Veteran Affairs. Like treasuries, these securities are fully backed by the U.S. government. However, Ginnie Mae securities have two disadvantages over treasuries: call risk (the principal may be paid off early) and no state tax exemption. Each of these slice about a quarter point from the expected return. As a result, you should only look at Ginnie Mae securities that yield at least half a point over comparable treasury bonds.

2. Fannie Mae and Freddie Mac - These quasi-federal agencies buy mortgages and package them into securities. They also can issue debt. These securities are "implicitly" backed by the U.S. government, which makes them slightly more risky than fully backed securities (like treasuries). However, it is very unlikely that the government would not bail them out.

3. FDIC Backed Bank Bonds - These are bonds that are issued by commercial banks and fully backed by the government's Federal Deposit Insurance Corporation.

4. Debt Issued By The Federal Home Loan Bank or Tennessee Valley Authority - Like Fannie Mae and Freddie Mac Securities, these fixed income investments are implicitly (rather than fully) backed by the U.S. government. Like treasuries, they are exempt from state income tax, but they do have call risk.

These four types of securities can help you create a well-diversified and high-performing portfolio.

Over the years, Praveen Puri, a trading and financial veteran, developed a passion for simplicity, minimalism, and Eastern philosophy. He developed a pure Zen trading system. It uses no news reports, indicators, charts, or parameters to distract you from Now. They are nothing but crutches that keep you hobbling around, instead of surfing in flow with the market.

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