Look, this could have been entitled «Education
of a Corporate Bond Manager, Part 13,» but I didn't because this is more broad and important.
Since you already have 80 % exposure to equities, chasing the
yield of corporate bonds for a very small part of your portfolio seems unnecessary.
Corporate bonds are considered to be riskier than government bonds because the investment grade
rating of corporate bonds varies depending on the debt issuance and revenue of the company.
The market
value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor's yield may differ from the advertised yield.
Over the past few years, corporations have taken advantage of the low interest rate environment and have thereby increased the
size of the corporate bond market considerably.
The leading rating agencies assess most issuers
of corporate bonds as to their ability and willingness to pay interest and repay principal as scheduled.
The announcement included new
purchases of corporate bonds, opening the way for future purchases of private sector assets, where the potential is very large [1].
That's a sharp contrast from earlier this year as fears of recession and a worldwide credit crisis led investors
out of corporate bonds.
Compare this with the average returns on the stock market at 6.5 %, along with the rate
of corporate bonds at 3 % and other stable investments and you're not even close.
Fixed - rate coupons The most common
form of corporate bond is one that has a stated coupon that remains fixed throughout the bond's life.
Interested investors can choose from many different
kinds of corporate bonds, and these securities frequently enjoy substantial liquidity.
One of the main
benefits of corporate bonds is that, up to the maturity date, you will normally get a regular income from interest payments on the money you have invested.
To help you understand what you read in the prospectus, we've put together a quick summary of the key product features and
risks of corporate bonds.
Now, however, he sees that trend changing, potentially leading to more efficient
pricing of corporate bonds and derivatives and thereby generating new funding opportunities.
Next to prevailing interest rates, the most important factor affecting the interest
rates of corporate bonds is credit risk.