Investment Jargon: Corporate Bond

Corporate Bond

A way of raising money for a company by issuing debt. This is risky for the company and the buyer of the debt because if the company misses a single coupon payment it triggers default and may lead to bankruptcy. In the event of bankruptcy bondholders are repaid before shareholders which is why bonds for a given company are less risky than the shares of that company.​ Some bonds are “rated” by credit rating agencies where they are given a letter signifying the risk of owning that bond. Ratings are linked to the probability of default with the dodgiest companies’ debt classified as junk (sub investment grade) and the most financially sound companies classified as investment grade.

The largest corporate bond market is in the US ($15 trillion financial company debt, $6 trillion non-financial) with much smaller markets in Japan ($2.7 trillion financial and $750 billion non-financial) and Europe (UK $2.7 trillion financial, $570 billion non-financial, France $1.5 trillion financial, $640 billion non-financial).