Corporate Bonds

Corporate bonds are debt instruments issued by for-profit companies to raise capital for expansion and/or ongoing operations. They are generally sold in $1,000 increments and pay taxable interest twice a year.

Corporate bonds generally pay higher interest rates than government bonds with comparable credit ratings and maturities. Investing in a corporation is a greater risk than a government entity that has the ability to raise revenue through taxes. Thus, investors must be compensated accordingly.

The least risky of all corporate bonds is a mortgage bond because it is backed by a company’s land and buildings. Bonds backed by non-real estate assets (e.g., airplanes, securities) have more risk. The highest risk corporate bond is a debenture, which is a corporate bond backed only by a company’s future earnings and promise to repay. Conservative investors will want to select mortgage bonds issued by investment grade (i.e., highly rated) companies.