Which type of bonds are generally considered safer?

Municipal bonds are generally considered safer compared to the other types of bonds listed due to several key factors. Primarily, they are issued by state and local governments to finance public projects such as schools, highways, and infrastructure. Because they are backed by the taxing power of the issuing body, there is often an assurance of repayment, making them less risky for investors.

Additionally, municipal bonds frequently offer a level of security that comes from being exempt from federal income taxes, and sometimes state and local taxes as well, which enhances their attractiveness. This feature can be particularly appealing to investors in higher tax brackets, as it effectively increases the bond's yield compared to taxable bonds.

In contrast, corporate bonds carry varying levels of risk depending on the financial health of the issuing corporation, and high-yield bonds, often referred to as "junk bonds," carry a higher risk of default due to the lower credit ratings of the issuers. Zero-coupon bonds can also be riskier because they don't make periodic interest payments, only offering a lump sum at maturity, leading to greater sensitivity to interest rate changes.

This combination of backing by governmental entities and tax advantages contributes to the perception of municipal bonds as a safer investment choice in the fixed-income market.