Corporate Bond
Candlefocus EditorIn issuing corporate bonds, companies raise capital by selling "bond certificates", which are a form of debt securities where the holder is entitled to the repayment of the face value of the bond at maturity. In exchange for taking on the risk of lending to the issuer, investors receive a regular stream of fixed interest payments known as the coupon. At maturity, the face value of the bond is usually repaid with the interest payments, giving the investor a return on investment.
The terms and conditions of each corporate bond depend on the issuer, the quality of their credit, interest rates, and other factors. Generally speaking, corporate bonds are seen as somewhat riskier than U. S. government bonds, as they are not backed by the full faith and credit of the federal government and come with a greater degree of counterparty risk. As such, companies usually need to offer higher interest rates in order to attract investors and compensate them for the higher risk.
One way to help assess the credit quality of a corporate bond is by rating it according to one of the major rating agencies, such as Moody's or Standard & Poor's. The highest quality (and safest, lower yielding) bonds are commonly referred to as "Triple-A" bonds, while the lower quality and higher yielding bonds are termed "junk" bonds.
Apart from the security offered, investors in a corporate bond have the option to buy and trade them in the secondary market. This allows them to potentially benefit from price volatility and possibly generate capital gains. It also offers more liquidity than other fixed-income investments such as CDs and treasury bills.
Overall, corporate bonds are an attractive investment product for investors who want to benefit from a steady stream of income and possibly some capital gains. Although they typically carry a higher degree of risk than U. S. government bonds, they can be a valuable addition to an investor's portfolio, provided they are well-researched and chosen according to the terms and conditions offered.