- A corporate bond is issued by a company to raise money; like any debt, it pays investors regular interest and a return of their principal when it matures.
- Corporate bonds are ranked for quality and risk by credit rating agencies, based on the financial soundness of their issuing company.
- Higher-rated, “investment grade” corporate bonds consistently pay a higher interest rate than US Treasuries, at relatively little risk.
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Just like people, businesses often need to borrow money — to finance new ventures, pay off old debts, or even to buy another firm. One method at their disposal is to issue bonds.
A corporate bond, like any bond, is basically a type of debt. The purchaser of a corporate bond effectively lends cash to the issuing company. In exchange, the company becomes obligated to pay interest on this principal sum and to return it in full after a set period, when the bond matures.
For investors, corporate bonds offer a source of income — one that’s more reliable than stock dividends, since the interest payments are usually fixed, and more lucrative than ultra-safe-but stolid US Treasury bonds. Of course, in the investment world, there’s always a tradeoff between risk and reward. And the reliability of corporate bonds can vary, depending on the company issuing them.
What is a corporate bond?
The main purpose of corporate bonds is to help companies raise additional cash, without having to borrow from a bank, sell