Types of Bonds
Why Invest in Corporate Bonds
Investors buy corporate bonds or bond funds for a variety of reasons:
Attractive yields -- Corporate bonds usually offer higher yields than comparable-maturity government bonds. This high-yield potential is generally accompanied by higher risks.
Dependable income -- People who want steady income from their investments, while preserving their principal, include investment rated corporate bonds in their portfolios.
Ratings/Safety --Corporate bonds are evaluated and assigned a rating based on credit history and ability to repay obligations. In general, the higher the rating, the safer the investment; it is important for individual investors to know the rating and understand the criteria by which it was rated. Corporate bond issuers that are given lower grade credit ratings by the credit rating agencies tend to pay higher interest rates on the bonds they issue.
Diversity -- Corporate bonds provide the opportunity to choose from a variety of sectors, structures and credit-quality characteristics to meet investment objectives. Corporate bonds can both diversify an equity portfolio and preserve capital when the stock market is falling, but also diversify a fixed income bond portfolio such as one that has focused on government bonds.
Marketability -- If you must sell a bond before maturity, in most instances you can do so easily and quickly because of the size and liquidity of the market in normal market conditions.