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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
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Moody’s
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Standard & Poor’s
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What the rating means
|
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Aaa
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AAA
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Highest quality
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Aa
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AA
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High quality
|
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A
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A
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Upper-medium quality
|
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Baa
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BBB
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Medium quality
|
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Ba, B
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BB, B
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Below investment grade
|
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Caa, Ca, C
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CCC, CC, C
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Highly speculative
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--
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D
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In default
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