risks,advantages

RISKS AND ADVANTAGES OF BONDS

RISKS

Interest Rate Risk	THIS IS THE BIGGEST RISK OF BOND OWNERSHIP. Bond prices move inversely with interest rates. Other risks can be avoided or minimized, interest rate risk is more difficult to avoid. Usually bond professionals are the only ones that can sufficiently protect a portfolio against this risk.
Default Risk	Second biggest risk, the risk of the issuing corporation filing for bankruptcy protection or otherwise defaulting on their obligation to pay. Default can come in many forms. If the company is late on a coupon payment, if they do not contribute to the sinking fund (if required), if they violate the parameters of the call features, any of these plus many more, constitute default, not just failure to pay. Investors probably perceive the failure to pay as the most serious because they are not getting paid for their investment.
Inflation Risk	Since bonds are fixed income securities, inflation risk (rising prices) could consume several percentage points if not all of the bond's rate of return.
Reinvestment Risk	If interest rates have fallen, coupons would be reinvested at a lower interest rate, thus lowering the yield to maturity. [Discussed in Yield-to-Maturity]
Maturity Risk	Risk in investing in long term securities.
Call Risk	The risk that a callable bond will be called.
Liquidity Risk	This is coupled with quality. Thinly traded bonds may not be quickly sold.

ADVANTAGES

Aside from regular cash payments, Bond holders have a senior position over stock holders in event the firm is liquidated or files for bankruptcy. Bond holders get paid first, then preferred stockholders, then common stockholders.

Debenture Bonds: Are backed only by the "full faith and credit" of the issuer. The bonds are unsecured debt.