Corporate Bonds (Investment Bond)

A corporate bond is issued by a private or public company as a means of raising capital from investors. Companies use corporate bonds as they can be a cheaper alternative to a bank loan.

Corporate bonds are given credit ratings according to the company's reputation and perceived ability for making profits and being able to pay its debts and dividends to shareholders. The lower the company's rating, the higher the interest rate, but the risk of losing some or all of your money is greater.

However corporate bonds are generally viewed as being a relatively low risk investment bond, compared to stocks and shares. This is because corporate bond holders and stock holders have precedence on a company's revenue and assets, in the event of a liquidation situation. It is possible to get corporate bonds that are secured against an asset that can be liquidated in order to fulfill the company's debt obligation to the corporate bond holder.

A corporate bond is similar to a gilt, which is a UK bond issued by the UK government rather than a company. Like a gilt the interest rate paid by the corporate bond is referred to as a coupon and the debt is repaid at a set future date. Although corporate bonds tend to pay higher rates than gilts due to the increased risks involved.

Please feel free to use the links below for more UK bond and corporate bond information:

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