Who Issue Corporate Bonds?

Those who issue corporate bonds are grouped by industry - real estate, resource and retail bonds. "Non-cyclicals" are industries with stable revenues and earnings. "Cyclicals are those whose revenues and earnings rise and fall with the economy and commodity prices." Issuers are also grouped by their credit ratings. Financially at-risk companies that have high levels of debt and variable revenues and earnings as well as their highly speculative nature are called "below investment grade" or "junk" bonds. Higher quality bonds are considered "investment grade".

There are five main classifications of issuers representing various sectors that issue corporate bonds:

• public utilities - telephone companies, electric utilities, gas pipelines, gas transmission companies and water companies.
• Transportation companies - airlines, railroads, and trucking companies.
• Industrial corporations - manufacturers, mining companies, energy companies, retailers and service-related industries.
• Financial service companies - money center banks, regional banks, savings and loans, brokerage and insurance companies and finance companies.
• Conglomerates. - includes a combination of major corporate businesses

these issuers may be U.S. companies or foreign companies. Foreign governments also act as issuers in the U.S. market.

What are the Benefits in investing in Corporate Bonds?

• High Yields - Corporate Bonds interest rates are often higher compared to other securities that make these bonds attractive to the investor.
• Dependability - These bonds afford a dependable income through interest payments, while keeping the principal amount in safekeeping.
• Safety - As an investor you have the assurance through credit ratings based on credit history and ability to repay obligations of a sound investment.
• Diversity - You have a wide range of choice from a variety of economic sectors, structures, and credit-quality characteristics to meet objectives.
• Marketability - You have easy access for the sale of your bond before the maturity date because of the size and the fluid nature of the market.

What are the Risks in investing in Corporate Bonds?

• Credit Risk - Bonds issues by companies with low credit ratings may earn higher interest rates, but they pose a greater risk in their ability to make investment payments as well as paying back the initial amount.
• Market Risk - The risks associated with Corporate Bonds are caused by a fluctuating market. A volatile price structure is to be expected from the date of issuing the bond to the maturity date. Changes in credit rating can also affect prices.
• Event Risk - If the company issuing the bond loses its stability and financial strength, then the value of its bonds go down too.
• Call Risk - When a company exercises its option to call its bonds before the maturity date due to falling rates of interest, the investor may not have good reinvestment possibilities. This is a risk the investor takes if he chooses a corporate bond that has a call schedule.
• Sector Risk - Varying factors in the economy may affect the issuers in different sectors, which in turn will affect the bonds.
• Changing patterns in the economy - When corporate bonds interest rates rise because of rising inflation, new issues come to market with higher yields than older securities, making the older ones worth less. So, prices go down. When interest rates decline due to a downward trend in the economy, new bond issues come to market with lower yields than older securities, making those older, higher-yielding ones worth more. Consequently, their prices go up.

Is it Safe to Invest in Corporate Bonds?

To buy corporate bonds is an investment choice that must be made after careful research. A list of corporate bonds can be examined online and analyzed to see which will suit your investment needs. With knowledgeable assistance from corporate bond brokers, it is possible to make sound investment choices when you buy corporate bonds.