Fixed Income: Corporate Bonds
- Corporate bonds are issued by corporations to raise money for capital expenditures-building plants, expanding facilities, and so on.
- Corporate bonds involve more risk than government bonds and thus typically offer higher yields than government bonds. Corporate bonds, however, usually are relatively safer than stocks.
- The stability of these bonds depends upon the earning power of the issuers. There are many corporate issuers to choose from, most with easily recognizable names.
- Maturities range from a few months to 40 years, and up to 100 years in a few cases.
- Corporate bonds are considered senior debt obligations of the company. This means principal and interest must be paid off on the bonds before payments are made for other classes of securities, such as stock dividend payments, if problems arise in the company.
- Corporate bonds offer attractive liquidity and can be used for retirement and education planning.
- The interest paid by corporate bonds is generally fully taxable.