Corporate Bonds

Corporate bonds are longer-term debt instruments issued by companies to raise money. It is a debt security issued by a corporation and sold to investors. Corporate bonds are issued generally with a maturity date at least one year after the date of issue. Corporate bonds, which have a short-term maturity, are known as commercial papers.

Corporate bonds are considered higher risk than government bonds. Investors who desire a higher rate of return than that offered by Treasury securities, and are willing to expose themselves to more risk in order to obtain it, often consider investing in bonds issued by corporations. But bonds are considered to be less risky than stocks since the Company has to pay off all its debts (including bonds) before it handles its obligations to stockholders. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds. The bondholder receives interest payments and the principal on a fixed maturity date. If there are any changes in rate of interest, they are reflected in bond prices.

Corporate bonds can be divided into five major groups: industrials, transportation, utilities, banks and other finance companies, and finally international. The type of issuer can generally classify corporate bonds. The following list is only indicative of the many corporate bond types:
Industrial companies: Manufacturing companies, Mining companies, Retailers, Service-related companies
Transportation Companies: Airlines, Railroads, Trucking Companies
Public utilities: Communication Companies, Electric companies, Gas companies, Water companies
Banks and finance companies
International bonds