Corporate bonds (also known as corporates) are issued by both private and public corporations. When you buy a corporate bond you are in effect lending money to the issuer. They will then use this money to invest in their own projects such as expansion or new equipment. In return the issuer will promise to repay your money (known as the principal) on a specified maturity date. The bond will also pay a stated rate of interest at intervals throughout the term of the investment (this will be taxable).
Advantages of Corporate Bonds
People invest in corporate bonds for a number of different reasons. Primarily they represent a stable bond investment opportunity. Corporate bonds are rated on a system of credit quality by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. The higher the rating the ‘safer’ the bond is deemed to be in terms of repayment of interest and principal. This means you can check the ratings lists and invest in those bonds that offer quality investment opportunities. Corporate bonds will form the foundation of any good diverse investment portfolio.
Corporate bonds are available in multiples of £1,000 and £5,000. This makes them affordable for a wide range of people from professional investors through to amateur hobbyists. These bonds will provide you with a dependable income in the form of interest payments and principal. They generally offer higher yields that comparable CDs or maturity government bonds.
Diverse Portfolios
Corporate bonds can offer diverse investment opportunities. These types of bonds are available in a wide range of sectors from healthcare through to heavy industries. Corporate bonds also offer different credit quality characteristics and provide a versatile range of options to suit your individual investment goals.
Marketability
Corporate bonds are issued with specific maturity dates. However, you should be able to sell your corporates easily before this as they offer good ‘marketability.’ Corporate bonds are a stable option in most cases and do not change much in normal market conditions. This increases their marketability and ensures a large and active trading volume with plenty of dealers willing to buy and sell.
When to Sell
You can make a good profit on your corporate bonds if interest rates drop suddenly. This means that new bonds will be issued with lower rates and you can sell the bonds you bought with high interest rates for a profit. You could make losses though if you sell your bonds after interest rates have risen.
You will need to ensure the company issuing the bonds is still ranked highly before you sell. If the company has become less stable you may not be able to sell your bonds for a good price. Selling corporate bonds must be managed carefully to avoid any potential losses, so it is a good idea to get advice from a professional before you make a move.
Corporate bonds offer diverse, stable investment opportunities with
guaranteed high interest return. These bonds can provide a good foundation for investment portfolios and allow you to invest in a wide range of different industries and sectors.
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