Investors considering fixed-income investments might want to consider corporate bonds, which some have described as the last safe investment. Investment-quality cor🍸porate bonds can provide a🏅 steady income and allow the investor to avoid or at least offset the turmoil of the stock market.

Among the advantages of corporate bonds:

• They generally pay better than government bonds.
• The best corporate bonds are liquid, meaning they can be bought and sold readily on the secondary market.
• They are issued in many variations to appeal to investors.

The disadvantages of corporate bonds:

• Although they are considered low-risk corporate bonds are not risk-free. The all-important ratings that are attached to bonds when they're issued can be lowered later due to unanticipated events.
• The worst-case scenario, a corporate bankruptcy, could erase your investment.

Advantages of Corporate Bonds

Corporate bonds ♈generally have better re🌼turns than government bonds.

Many individual investors, especially retirees, buy and hold bonds to obtain a steady income stream. They rarely or never sell the bonds, holding them until they mature and then ൲rolling over the cash into newly issued bonds.

Other investors trade bonds in the secondary bond market. This is where existing bond issues are bought and💯 sold at ✤a discount or a premium of their face value as the direction of new bond issues make them less or more valuable to investors.

Liquidity

Liquidity is one advantage of corporate bonds. Active bond t𒈔raders can benefit from selling bonds that have risen in price or buying bonds after they decline in price.

Some corporate bonds are ꦰthinly traded. That means there is relatively little demand for them and trading them profitably can be difficult.

Investors considering selling corporate bonds should be aware that numerous variables can affect their🌠 transactions, including current interest rates🥂, the credit rating of their bonds, and the size of their position.

Choice

Bond investors can buy short-term bonds with 澳洲幸运5官方开奖结果体彩网:maturities of ꦰfive years or less, medium-term bonds that mature in five to 12 years, or long-term bonds that mature in more than 12 years.

Be▨yond these considerations, corporate 𒉰bonds come in a variety of coupon structures:

• Bonds that have a zero coupon rate do not make interest payments. They are issued at a discount to their 澳洲幸运5官方开奖结果体彩网:par value and the full face value is repaid at maturity.
• Bonds with a fixed coupon rate pay the same interest rate until they reach maturity, usually on an annual or semi-annual basis.
• Bonds with floating coupon rates are based on a benchmark such as the Consumer Price Index (CPI) or the 澳洲幸运5官方开奖结果体彩网:London Interbank Offered Rate (LIBOR). The interest payments rise or fall along with the benchmark.
• Bonds with step coupon rates provide interest payments that change at predetermined times, usually increasing. Most have a 澳洲幸运5官方开奖结果体彩网:call provision, meaning that the initial interest rate is paid until the call date. When the call date is reached, the issuer may either 澳洲幸运5官方开奖结果体彩网:call the bond or increase the interest rate.

Disadvantages of Corporate Bonds

Credit risk is a disadvantage of corporate bonds. If the issuer goes out of business, the investor may never get the promised interest payments or🍌 even get their principa𝔉l back.

Corporate bonds are generally considered riskier than government bonds because governments at ꦦleast have the option of raising taxes to meet their o🦋bligations.

Rating Risk

澳洲幸运5官方开奖结果体彩网:Investment-grade bonds, corporate or gove😼rnment, are considered relatively safe investments.

Bonds are rated by three main competing agencies: Standard & Poor's Global Ratings, Moody's, and Fitch Ratings. There are other rating agencies, some of them specializing in particular industries.

The rating agencies are not grading the quality of the bond. They're grading the quality of the issuer according to the likelihood that it can repay its investors for what is, essentially, a loan.

The rating systems vary a bi🌌t in the details, from AAA to A for the highest rated to C or D for the lowest rated.

Generally, any bond rated under B+ is not investment grade.

The Securities & Exchange Commission (SEC) notes that all bond ratings reflect a potential conflict of interest: The rating agencies are paid, either by the entity issuing the bond or by subscribers to a site for bond investors.

Event Risk

Another notable disadvantage of corporate bonds is event risk. Compan😼ies can face unforeseen circumstanc🎀es that undermine their ability to generate cash flow.

Interest payments and repayment of principal depend on an issuer's ability to generate cash flow.

The Bottom Line

Corporate bonds can provide 澳洲幸运5官方开奖结果体彩网:a reliable stream of income and ꧃many types are available. Their relati𒆙vely low risks make them particularly attractive. If that low risk is their primary attraction to you, best to stick to highly-rated bonds from solid companies.