Corporate Bond
Quick Definition
A debt security issued by a corporation to raise capital, paying periodic interest and returning principal at maturity.
What Is Corporate Bond?
A corporate bond is a debt instrument issued by a company to finance operations, expansions, acquisitions, or refinancing. When investors buy corporate bonds, they are lending money to the corporation in exchange for regular interest (coupon) payments and the return of principal at maturity. Corporate bonds generally offer higher yields than government bonds to compensate for greater credit risk — the possibility the company might default. They are classified by credit rating: investment-grade bonds (BBB-/Baa3 or above) from financially strong companies like Apple, Microsoft, or Johnson & Johnson, and high-yield or "junk" bonds (below BBB-) from riskier companies or those with higher leverage. The corporate bond market is massive — over $10 trillion in the U.S. alone — and trades primarily over-the-counter (OTC) rather than on exchanges. Maturities range from 1 to 30+ years, with most corporate bonds having face values of $1,000 and paying semiannual coupons.
Corporate Bond Example
- 1Apple issued $5.5 billion in corporate bonds at yields between 2.5-3.5%, far below the cost of equity, to fund share buybacks
- 2A BBB-rated corporate bond yielding 5.8% vs a Treasury at 4.0% — the 180bp spread compensates for the company's credit risk
Related Terms
Bond Rating
A credit quality grade assigned by rating agencies (S&P, Moody's, Fitch) that assesses the issuer's ability to repay principal and interest.
Investment Grade
A bond rating of BBB-/Baa3 or higher, indicating relatively low credit risk and suitability for conservative investors.
Junk Bond
A bond rated below investment grade (BB+/Ba1 or lower), offering higher yields to compensate for elevated default risk.
Bond Spread
The yield difference between a bond and a benchmark security (usually a Treasury), reflecting the additional risk compensation investors demand.
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
Expand Your Financial Vocabulary
Explore 130+ financial terms with definitions, examples, and formulas
Browse Bonds & Fixed Income Terms