Corporate Bonds

*Corporate Bonds* 

Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business.

When a bond issuer redeems a bond at maturity, you receive the face value of the bond and any interest that has accrued since the last time an interest payment was made. If the interest was not paid out periodically, you receive all of the interest that has accrued since the bond was issued.

Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds' maturity date. When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments.

Benefits and Risks of Corporate Bonds

Corporate bonds, however, offer one of the best return prospects of any fixed-income option. ... As interest rates rise, the prices of preexisting bonds will drop. If rates fall, though, bond prices are likely to rise, causing investors to sell their holdings.

Corporate bonds are issued by companies that want to raise additional cash. You can buy corporate bonds on the primary market through a brokerage firm, bank, bond trader, or a broker. Some corporate bonds are traded on the over-the-counter market and offer good liquidity.

Bonds can be classified according to their maturity, which is the date when the company has to pay back the principal to investors. Maturities can be short term (less than three years), medium term (four to 10 years), or long term (more than 10 years)

The rate of return or yield required by investors for loaning their money to the government is determined by supply and demand. Treasuries are issued with a face value and a fixed interest rate and are sold at the initial auction or in the secondary market to the highest bidder.