Offer attractive returns with less volatility than equities.
Introducing The Corporate Bond Market To You, The Retail Investor
All investors will have experienced market volatility at some stage affecting the growth and overall return on their investments. Many investors have sought to increase the stability of their portfolios by moving to lower risk investments offering fixed interest returns.
Corporate bonds offer attractive returns with less volatility than equities. However these investments have traditionally been out of reach to the ordinary investor.
What Are Corporate Bonds?
Corporate bonds are debt instruments issued by companies seeking to raise funds for purposes such as funding expansion plans or acquisitions, capital expenditure, or in some instances, to boost the company’s balance sheet.
When a company issues a corporate bond, you the lender (or investor) purchases the bond from the borrowing corporation (or issuer) at the bond’s face value. In return, the issuer agrees to make regular interest payments to the investor, usually in six-monthly installments for fixed rate bonds, and quarterly installments for floating rate bonds, from the issue date through to the maturity date of the bond. The amount of interest paid is referred to as the coupon at outset. These coupons are for a fixed amount but when purchased on the secondary market it is known as the yield.
When the bond matures, the issuer then returns the capital to the bondholder by paying the face value of the bond. Maturity dates generally vary between one and 30 years from the date of issue, with 5 and 15-year bonds currently the most popular.
Corporate bonds can be freely traded without penalty and the bondholder does not have to hold the bond until maturity.
Current coupon rates for quality bonds range between 5% and 6%.