Corporate Bonds

Corporate Bonds

Corporate bonds are issued by companies trying to raise capital, most commonly in the following industry sectors:

  • Public utilities
  • Transportation
  • Industrial
  • Financial services
  • Conglomerates

Corporate bonds tend to be more risky than government bonds because they are backed by the individual corporations, not the U.S. government. It’s important to check out a company’s industry ratings before purchasing its bonds, as its ratings are a measure of the company’s financial stability.

By the same token, because you incur greater risk with a corporate bond, investors are generally rewarded with a higher interest rate on corporate bonds than on most government-issued bonds.

Corporate bonds have the following features:

  • Minimum purchase is typically $5,000.
  • You may purchase newly issued bonds or bonds resold on the market.
  • Corporate bonds are subject to local, state, and federal taxation.

Industry Ratings and What They Mean

Moody’s

Standard & Poor’s

What the rating means

Aaa

AAA

Highest quality

Aa

AA

High quality

A

A

Upper-medium quality

Baa

BBB

Medium quality

Ba, B

BB, B

Below investment grade

Caa, Ca, C

CCC, CC, C

Highly speculative

D

In default