Corporate Bonds: How to Invest in the Debt of Corporations
Corporate bonds are riskier than government bonds -- sometimes a whole lot riskier. As a result, they have to pay more to attract investors. Here's where you'll learn about the corporate bond market, how credit agencies determine the risk of a bond, what it means when a bond is "callable" and the difference between investment grade securities and the high-yield debt known as junk bonds.
Using Bond Credit Ratings to Evaluate a Corporate Bond
A bond is a loan. So the first question to ask before you buy a bond is the same question you'd ask before you loaned money to your brother-in-law: "Will I get my money back?" In bonds, there's an entire industry dedicated to answering that question. Welcome to the world of Wall Street's credit-rating agencies.
A bond is a loan. So the first question to ask before you buy a bond is the same question you'd ask before you loaned money to your brother-in-law: "Will I get my money back?" In bonds, there's an entire industry dedicated to answering that question. Welcome to the world of Wall Street's credit-rating agencies.
Junk Bonds: Weighing Risk vs. Rewards in the High-Yield Debt Market
Junk bonds, also called high-yield and below-investment-grade securities, are among the riskiest investments in the credit market. But because of that risk, bond issuers must pay higher yields to attract investors.
Junk bonds, also called high-yield and below-investment-grade securities, are among the riskiest investments in the credit market. But because of that risk, bond issuers must pay higher yields to attract investors.
Understanding Callable Bonds
Some bonds have an unusual feature that allows the issuer to "call" back the bond and pay off the principal early. That poses some additional risk to investors in the debt market. But there are also some additional rewards available to buyers of callable bonds.
Some bonds have an unusual feature that allows the issuer to "call" back the bond and pay off the principal early. That poses some additional risk to investors in the debt market. But there are also some additional rewards available to buyers of callable bonds.
What Are Zero-Coupon Bonds and "Strips"?
Zero-Coupon Bonds are sold at a deep discount to their face value. In many cases, interest is compounded and paid at maturity rather than during the life of the bond. In other cases, a financial institution "strips" the interest payment from a fixed-income investment and resells it as a zero coupon.
Zero-Coupon Bonds are sold at a deep discount to their face value. In many cases, interest is compounded and paid at maturity rather than during the life of the bond. In other cases, a financial institution "strips" the interest payment from a fixed-income investment and resells it as a zero coupon.
How to Buy a Corporate Bond
Buying individual corporate bonds is a complex endeavor. It takes more sophistication and more research than buying a share of stock. Here's some of the key things to consider.
Buying individual corporate bonds is a complex endeavor. It takes more sophistication and more research than buying a share of stock. Here's some of the key things to consider.