Corporate Bond

Corporate bonds are debt securities issued by private and public corporations to raise capital for business operations, expansion, or acquisitions. Companies prefer bonds to bank loans for longer terms and potentially lower rates. Corporate bonds typically pay higher yields than government bonds to compensate for credit risk. For example, while a 10-year Treasury might yield 4%, an investment-grade corporate bond might yield 5.5%, and a high-yield bond 8%. They’re categorized by credit rating: investment grade (BBB- and above) and high-yield or ‘junk’ (below BBB-). Most pay fixed semi-annual coupons, though some have floating rates. Maturities range from 1-30 years, with 10 years being common. Corporate bonds can include covenants protecting investors, such as limiting additional debt. During bankruptcy, bondholders have priority over stockholders. The corporate bond market exceeds $10 trillion in the U.S., providing crucial capital for business growth while offering investors higher yields than government bonds.