Corporate Investment Bonds

By: EconomyWatch Content   Date: 28 October 2009

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Corporate investment bonds or corporate bonds are fixed income securities issued by both public and private corporations. The corporations or the issuers utilize the proceeds from the corporate bonds to purchase equipments and build facilitates. If you invest in corporate bonds, you are just a lender loaning your money to the issuer. You will not have any stake or say in the functioning of corporations. The corporate bonds market has varied degrees of credit risks and cash flow structures. This market is changing constantly in terms of products and investment approaches.

Types of Corporate Investment Bonds

Corporate investment bonds vary in terms of features and interest rates. Although, bonds are generally low-risk fixed income securities, the credit risks differ across various types of bonds.

Fixed rate bond:With this type of corporate investment bonds, the interest rate is fixed. You will get the interest income paid semi-annually or annually. The principal amount is paid once the maturity period is over.

Callable Bond: With this type of corporate investment bonds, the issuer can redeem the bonds before the maturity period itself. Corporations do this when they have favorable interest rate environments such as low interest rate periods. Then, the corporation will issue new bonds with lower interest rates. The bond holder is paid a premium in such a scenario.

Puttable Bond: This type of bond lets a bond holder redeem before the maturity period. Corporations fix the repurchase price when they issue. Most of the time, the repurchase price will be at par with the face value. Typically, put bonds have lower yield than fixed rate bonds.

Floating Rate Bond: This type of corporate investment bonds has variable interest rates. Corporations change the interest rates based on benchmarks. Usually, the yields from this type of bonds are lower than fixed income bonds.

Zero Coupon Bond: This type of corporate investment bonds is issued at deep discounts and does not have cash coupon payments. You will get the interest income accrued throughout the maturity period.

If you want to invest in corporate investment bonds, go ahead but invest only in companies that are financially stable. Try to reduce your credit risks this way and you can earn higher interest income than other types of bonds such as US Treasury bonds. Generally, corporate bonds do not come with a guarantee or insurance.


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