Bonds issued by a corporation with a maturity of greater than one year are called corporate bonds.
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Below is a video summary on what you need to know before investing in corporate bonds. It will help you find out more about bonds and which bonds to buy in the UK or whatever country you are located in. You can find the longer text version below the video.
corporate bonds from Learn Bonds on Vimeo.
More information on the topics in this video:
Bond Covenants: What they are and how to use them
Callable Bonds
Convertible bonds
FINRA TRACE
How to buy Junk Bonds
Corporate bond Investment Ideas
You’re in the Right Place!
Intro to Corporate Bonds
There are thousands of corporations that issue bonds and the credit quality of corporate bonds varies much more widely than that of treasury bonds or municipal bonds. While a default by the US Government has never happened to government bonds, and municipal defaults are few and far between, corporations (none of which have the ability to tax in order to pay off their debt) default on their bonds on a fairly regular basis.
Before making an investment account for a corporate bond you’ll want to make sure you know its credit rating and understand how the bond and bond market is structured. Is the bond secured by a specific asset or an unsecured bond where the investors are out of luck in the case of a default? What place in line do investors hold if the corporation defaults on its bonds? Is it senior debt which is paid first, or subordinated debt that is paid only if there is anything left after senior debt holders are paid?
Lastly, you want to understand if the bond has any embedded options like a call option, which usually benefits the corporation, or a convertibility option, which can benefit the investor. For more on this read our articles on convertible bonds and callable bonds.
Corporate Bond Prices
All brokers must report their corporate and agency bond trades to FINRA within 15 minutes of the trade or fact potential regulatory action. TRACE (Trade Reporting and Compliance Engine) is their system for collecting and distributing market data. In addition, they have tables which show the number of bonds rising and declining in value at the end of the day.
Junk Bonds
Junk bonds are corporate bonds whose rating is lower than Baa3 for Moody’s or BBB- for Standard & Poor’s and Fitch, the three major credit rating agencies. They are also referred to as “high yield bonds” because of the higher interest rate investors require to compensate for the increased risk involved with junk bonds. In any given year as many as 15% of all junk bonds issued default.
Believe or not, the debt of most corporations is considered junk. According to Glen Yago at the Milken Institute, “The debt of 95 percent of U.S. companies with revenues over $35 million (and of 100 percent of companies with revenues less than that) is rated non-investment grade, or junk.” For investors who are willing to take on the risk, there are plenty of options for investing in junk bonds.
If you’re interested we have a great series on how to buy junk bonds here, which is written by LearnBonds contributor The Masked Investor.
Other Corporate Bond Info
Raymond James Weekly Corporate Bond Market Update
How to Buy Corporate Bonds
Corporate Bond Taxes
Individual Bonds vs. Bond Funds
Invest In A P2P Loan With Property Crowd | Specialist For Construction Businesses
- Minimum initial deposit of £900
- Invest in a wide range of construction projects
- Returns can be tax free using an ISA wrapper
Glossary of Bonds terms
A bond is when companies or governments need to generate funds and when you invest you will receive lump sump back with interest at the end of your agreement.
Gilts refer to the bonds and debt securities issued by the UK government through the Debt Management Office. They carry fixed interest rates and are categorised among the most secure forms of investment as they are government backed thus have never failed to pay interest or repay back capital upon maturity.
A Municipal Bond is usually issued by United Kingdom Municipal Bonds Agency to finance public projects initiated by the local authority such as roads, drainage, and schools. You will receive you lump sum and interest back at the end of the term.
A Corporate Bond is issued by businesses to raise funds for expansions or projects. You will recieve you lump sum and interest back at the end of the term.
A Bond that has no interest rate but your investments are entered into prize draws to win £25 to £1mil.
Usually offered by Banks and Building Societies, Saving Bonds will last for a fixed term and earn interest. You are not able to access the money during the fixed term.
A Fixed Bond will start and end with same Interest Rate.
UK Bonds – A-Z Directory
UK Bonds - directory |