What is a Corporate Bond
A corporate bond is a debt security issued by a corporation to raise capital. When a company issues a corporate bond, it is essentially borrowing money from the bondholder and agreeing to pay back the principal amount of the loan, plus interest, at a later date.
Corporate bonds are an important source of financing for companies, particularly for large, mature companies that may have already exhausted other financing options such as bank loans or equity financing. They can be used to finance a variety of purposes, including expansion, acquisitions, or paying off existing debt.
Investors in corporate bonds are taking on the risk that the issuing company will not be able to make the required interest payments or pay back the principal when the bond matures. As a result, corporate bonds generally offer higher yields (i.e. interest rates) than other types of debt securities, such as government bonds, which are considered to be lower risk.
There are several factors that can affect the risk and potential return of a corporate bond, including the creditworthiness of the issuing company, the terms of the bond (such as the interest rate and maturity date), and the current market conditions.
Investors in corporate bonds can include individual investors, financial institutions, and pension funds. They can purchase corporate bonds directly from the issuing company or on the secondary market through a broker. Corporate bonds can be held to maturity or traded before maturity, depending on the investor's goals and risk tolerance.