What Is a Time Bond?

The phrase "time bond" is simply another way to reference the different levels of bonds that are commonly offered as investment vehicles. Some bonds are classified as "short-term bonds," while others are classified as "long-term bonds".  Within the time bond categories there are also different classes of bonds, including government bonds, municipal bonds, callable bonds, fund bonds, high-yield bonds, and others.

Types of Time Bonds

There are three main types of time bonds. The shortest duration of time bond, with a maturity date that comes less than 12 months following its issue date, is the bill. The next step up from a bill is a time bond that matures between 12 months and 10 years from the date of issue, and this type of time bond is called a note. Finally, the longest term time bond, with a maturity date in excess of 10 years from the date of issue, is called a bond. Nevertheless, all three of these types of time bonds qualify as a "bond" for investment purposes.

How Time Bonds Work

Time bonds are structured to match interest rate and percentage yield with amount of risk and time to maturity. There are other factors that also come into play when evaluating risk and yield, including bonds that are what is called "callable", which means that the borrower, or bond issuer, can "call" or redeem the bond prior to its maturity date. There are different schools of thought amongst investment strategists and financial advisors regarding which class of time bonds is more likely to yield a better return on investment, but investors generally favor long-term bonds and feel that analysis highlights the greater likelihood of long-term bonds to deliver higher interest rates.

Selecting the Right Type of Time Bond for Your Portfolio

In general, selecting the right type of time bond for your portfolio will be a function on what your unmet financial goals currently are. If you are nearer to your retirement years and are seeking a stable source of short-term gains, selecting a short-term bond will likely be your best investment option. However, if you are young into your working years and are simply trying to provide a baseline foundation of stability to an otherwise aggressive investment portfolio, purchasing longer-term bonds, even up into the double-digit maturity dates, can provide that stable baseline and still give you plenty of investing room to grow on.

Risks With Time Bonds

The important thing to remember about time bonds is that it is possible to lose money with bonds, just like with any other form of investment security. While bonds are largely considered more stable than many other investment vehicles, and short-term time bonds are considered to be the most stable of all bond investments, care should still be taken to evaluate the overall financial health of the bond issuer and determine whether the bond purchase makes financial sense.