corporate bond

Definition

A type of bond issued by a corporation. Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier. The bond holder receives interest payments (yield) and the principal, usually $1000, is repaid on a fixed maturity date (bonds can mature anywhere between 1 to 30 years). Generally, changes in interest rates are reflected in bond prices. Bonds are considered to be less risky than stocks, since the company has to pay off all its debts (including bonds) before it handles its obligations to stockholders. Corporate bonds have a wide range of ratings and yields because the financial health of the issuers can vary widely. A high-quality Blue Chip company might have bonds carrying an investment-grade rating such as AA (with a low yield but a lower risk of default), while a startup company might have bonds carrying a "junk bond" rating (with a high yield but a higher risk of default). Corporate bonds are traded on major exchanges and are taxable.

Use corporate bond in a sentence

You should try and invest some money in a corporate bond so that you know you have some in safe keeping.

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We had decided to put the client in a corporate bond as they wanted a substantial return at little to no risk.

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It was a corporate bond and I had trouble realizing what it meant because it was very different than what I was used to.

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fixed-rate capital securities after-tax return