Investing Corporate Bonds

 

 

When a person is investing corporate bonds, he/she lends money to the issuer. This money has to be repaid by the issuer with interest upon the maturity period. For companies, it is a cost effective alternative to issuing shares. Many companies issue corporate bonds to reduce the cost of borrowing.[br]

Risk-averse investors opt for corporate bonds as they have less risk compared to any other investment vehicles such as:

·        Equities

·        Commodities

·        Forex

Investors buy corporates or corporate bonds for various reasons, including:

·        attractive yields

·        stable income

·        safety

·        diversity

Investing Corporate Bonds: Attractive yields and Safety

Usually the yields from investing corporate bonds are higher than that from the US Treasury bonds or CDs. However, this higher amount of yield comes with a higher amount of risks.  

Bonds in general offer a stable income stream through interest income. With bonds, one can preserve the capital apart from earning the interest income.

Rating agencies such as Moody’s, Standard & Poor and Fitch evaluate the financial health of issuing companies and assign suitable rates or grades to them. The rating is based on the issuing company’s ability to repay the principal with the accrued interest on time and in full.

The higher the rating, the higher will be the credit worthiness. Bonds, with a rating of BBB and above, are considered to be investment grade bonds. That’s why investors are advised to choose bonds from creditworthy issuers and thereby, avoid losses.[br]

Investing Corporate Bonds: Higher Yields

Many institutional investors and individual investors invest in corporate bonds to diversify their portfolio. These bonds provide an opportunity for investors to choose from various sectors and credit-quality characteristics.  

Further, you can sell your corporate bonds before maturity if you have an urgent cash requirement. Since the corporate bond market is very huge, the liquidity is very high. This means that it lets you to buy and sell whenever you want.

Investing corporate bonds or investing in corporate bonds is a highly useful tool for many investors. It is particularly useful when there is high volatility in equity and Forex markets. Even within the bond market, corporate bonds offer higher yields.