Corporate Bonds Key Terms

Learn corporate bonds key terms before investing in high yield corporate bonds

Corporate bonds are issued by corporations to investors. Corporations issue corporate bonds to raise money so that they can expand their businesses. Corporate bonds have a higher risk of default than governmental or municipal bonds. The risk depends on the type of corporation that is issuing the bond. There are key terms used to help new as well as seasoned investors learn about corporate bonds. It is vital to know these key terms before making an initial investment since there are many variables involved in investing with corporate bonds. So take the time to learn the key terms for corporate bonds to reap the benefits of making wise investments.

High-yield bonds

High-yield bonds are high-risk bonds that pay high yields. These types of bonds are attractive to investors because of their higher yield payments.

Fixed-rate capital securities

Fixed-rate capital securities combine certain features of preferred stock and corporate bonds. These types of securities offer investors regular income as well as a choice of insurers.

Corporate bond yields

Corporate bond yields are the yield paid to investors of corporate bonds. The yields from corporate bonds are higher than those for government or municipal bonds since there are more risk factors involved. Because they have invested in corporate bonds in spite of the risk involved, investors receive high corporate bond yields.

Structure

The structure of a bond is the schedule when interests are paid. The three types of rates are fixed, floating rate and zero-coupon. Fixed have are fixed rate securities. The rates of floating rate bonds vary according to money markets and often issue lower yields than other types of bonds. Zero-coupon bonds have no structured interest payments.

Convertible bonds

Convertible bonds convert to predetermine amounts based on a company's equity at various times during its bond life. Convertible bonds provide large additional profits to investors since they convert to company stock. Corporate bonds offer rates of return to investors because of this option.

Callable bonds

Callable bonds are bonds that initial insurers can retrieve before they are due. When insurers redeem callable bonds they are required to pay bond holders a premium. Declining interest rates entice insurers to redeem callable bonds.
U.S. Securities and Exchange Commission.