Corporate Bonds

Corporate bond are bonds issued by corporations in Canada and the United States. Corporations issue bonds to raise money for their business.  Corporate bonds have maturity dates with at least one year or greater.  Corporate bonds which mature in less than one year are sometimes referred to as commercial paper. 

Corporate bonds are often issued with coupons, however in some cases are available as strip bonds or zero coupon bonds.  Corporate bonds, in some cases, have a call option which allows for the corporation to redeem the bond, or call in the bond prior to the maturity date. 

Corporate bonds generally have higher yields than municipal, provincial and government bonds as a result of having a higher degree of risk and default.  The risk associated with a corporate bond is almost totally attributable to the creditworthiness of the company. This can change, sometimes radically, depending on the prevailing business environment

Corporate bonds may be categorized as “investment grade” or “high yield.” Investment grade corporate bonds offer slightly higher interest rates than government bonds because they are not guaranteed by a government.

The difference in rates between investment grade corporate bonds and government bonds generally rises and falls as a result of investor confidence, investors’ willingness to take risks, the outlook for the economy, and growth in corporate profits. High yield bonds are very risky and are unsuitable for those whose goal is to invest conservatively.

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