Corporate bonds are a way for you to invest in companies. Companies release bonds, usually at a price of around 100GBP per bond. After a set term, you will receive this money back, plus interest. The interest rate on bonds is called the coupon rate and it is fixed, given a currency value rather than a percentage value, and is paid to you ever year for the length of the term.
When a company pays you back the nominal value of the bond, you receive the original nominal value, so the stock market value, which may be larger or smaller then the nominal price, is not taken into account.
Corporate bonds do carry an investment risk in that the company that you purchase bonds from may go bust. This would result in the company being unable to pay the money that it owes you. For this reason, riskier companies tend to release bonds with higher coupon rates.
During the period after a bond being released and a bond reaching the end of its term, the bond can be bought or sold on the stock market. This means that the value of the bond can rise and fall along with the market value if the company, but the value will also depend on the length of time left in the bond term, as well as the current state of the stock market as a whole.
Corporate bonds can now be traded on the London Stock Exchange in amounts valuing around 1000GBP. Prior to 2010, corporate bonds were only ever offered to the market in values no less than 50, 000GBP.
As there are minimum rates involved when it comes to trading bonds on the stock exchange, if you wish to trade but do not have enough bonds to trade yourself, the easiest way for you to trade is for you to join a corporate bond fund. This way you pool your money with other investors so that your bonds can be traded, and hopefully turn a larger profit.
The new retail market for corporate bonds allows savers to buy individual bonds from major companies such as BT or Tesco. Individual bonds tend to give bigger returns than standard savings accounts, although if interest rates rise significantly, you would still be stuck with the same interest rate.
Investing in a corporate bond fund has advantages in that the fund manager does all the hard work for you and your return will likely by higher than with individual bonds.
Lon Sonoski is very knowledgeable on savings and accounts and loves to write about corporate bonds.
Lon Sonoski is very knowledgeable on savings and accounts and loves to write about
corporate bonds.
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