Corporate bond
A corporate bond is a debt security issued by a corporation.
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A corporate bond is a debt instrument issued by a corporation to raise financing for purposes such as funding ongoing operations, mergers and acquisitions, or business expansion. It represents a longer-term borrowing arrangement in which the corporation promises to repay a specified amount under defined terms. Corporate bonds are traded in decentralized, dealer-based over-the-counter markets, and while some are publicly listed, the majority of trading volume occurs over-the-counter.
Background
Corporate bonds are divided into high grade and high yield categories based on credit ratings. Bonds rated AAA, AA, A, and BBB are considered high grade, while those rated BB and below are high yield. This distinction is significant because different trading desks and investors handle each category; for instance, many pension funds and insurance companies are restricted from holding more than a token amount of high yield bonds due to internal rules or government regulation.
Did You Know?
- Corporate bonds with maturity shorter than one year are referred to as commercial paper.
- For US dollar corporates, the coupon is almost always semiannual; for Eurodollar corporates, it is annual or semiannual.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Corporate bond (CC BY-SA 4.0).
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