Corporate Bonds Market

By: EconomyWatch Content   Date: 30 October 2009

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Those investors who do not want to take much risk often opt for investing in the corporate bonds market. Corporate bonds market is a financial market where corporate bonds are bought and sold. This market is one of the safest places you can put your money in. However, the yield will not be as high as other high-risk investment vehicles such as:

·        Equities

·        Commodities

·        Mutual funds

However, within the bonds market, the corporate bonds offer higher returns as compared to other highly secured bonds such as the US Treasury bonds.

Corporate Bonds Market: How Does It Work

When you are buying corporate bonds in a corporate bonds market, you are providing a loan or lending money to a business. The company will pay you interest on your investment in return. You will not have any ownership or stake in the company. The company will promise you to pay back your principal on a pre-arranged date called a maturity date.

Usually, the interest on your money will be paid once in six months. Some corporate bonds may have the option of paying the interest amount when you redeem after the maturity period is over. The interest income from corporate bond is taxed and should be declared. Usually, such corporate bonds come in multiples of $1000 or $5000. 

Corporate Bonds Market: Scope

The corporate bonds market is very big with more than $20 billion of trading every single day. Usually, these corporate bonds are traded in Over-The-Counter (OTC) market. You can buy corporate bonds from dealers or brokers across the country through phone or online. Large financial institutions such as insurance companies, banks and pension funds invest in corporate bonds. Individuals also invest in the corporate bonds market.

Unlike other bonds, corporate bonds are easy to buy and sell because the corporate bonds market is very big. However, corporate bonds do not have the safety features of the US Treasury bonds. The Treasury bonds are insured with the FDIC and guaranteed by the US government. This ensures that you are sure what and when you will get. Corporate bonds offer higher returns than Treasury bonds as you take more risk.


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