When you buy a bond issued by a corporation — General Electric for example — you are depending on the issuer to make to you the
regular interest payments on the bond and pay off the bond's face value when the bond matures at a specified date in the future.
For example, an interest rate swap is a derivative whereby two parties exchange, or «swap,»
interest payments on a bond; one side might get a constant 3 percent each payment period, while the other gets the LIBOR rate (a benchmark rate that some banks charge each other for short - term loans).
Under the US Tax Code for corporations,
the interest payments on these bonds (paid to investors) is tax deductible.
The interest payments on a bond are usually fixed.
Indeed, if rates rise gradually,
the interest payments on a bond fund will increase as older bonds mature and newer ones are purchased with higher coupons.
The «real return» phrase in the name means that
the interest payments on these bonds will rise and fall with inflation, although that hasn't been a factor lately.
Even if you do find an agent who is willing to work with you, you may discover that
interest payments on your bonds have stopped because the issuer called the bond well before the maturity date.
Remember the time before last when MS loaned Arg the money to make
the interest payments on bonds?