Opening the corporate bond market to you, the retail invester
With the volatility experienced in world markets over the past 36 months, many investors have sought to increase the stability of their portfolios by moving into lower risk investments such as cash and fixed interest. Over the last 18 months corporate bonds have offered attractive returns with less volatility than equities, however these investments have traditionally been out of reach to the retail investor.
What are Corporate Bonds?
Corporate bonds are debt instruments issued by companies seeking to raise funds for such purposes as funding expansion plans or acquisitions, capital expenditure, or in some cases, to boost the company’s balance sheet.
For answers to all your questions please visit our FAQ about corporate bonds
When a company issues a corporate bond, you the lender (or investor) purchases the bond from the borrowing corporation (or issuer) at the bond’s face value. In return, the issuer agrees to make regular interest payments to the investor, usually in six-monthly instalments for fixed rate bonds, and in quarterly instalments for floating rate bonds, from the issue date through to the maturity date of the bond. The amount of interest paid is often referred to as the coupon rate or coupon return. These coupons can be a fixed amount or variable based on the prevailing 90-day swap rates. When the bond matures, the issuer then returns the capital to the bondholder by paying the face value of the bond. Maturity dates generally vary between one and 30 years from the date of issue, with 5 and 15 year issuances currently the most popular.