Corporate Bond
A debt security issued by a corporation to raise capital from investors.
What is Corporate Bond?
A corporate bond is a debt instrument issued by a company to raise capital for business purposes such as expansion, acquisitions, or refinancing existing debt. Investors who buy corporate bonds are lending money to the issuing company in exchange for periodic interest payments (coupons) and the return of principal at maturity. Corporate bonds typically offer higher yields than government bonds to compensate for greater credit risk — the possibility that the issuer may default. They are rated by agencies such as Moody's, S&P, and Fitch, with investment-grade bonds (BBB−/Baa3 and above) considered lower risk than high-yield (junk) bonds.
Example
Apple Inc. issued $6.5 billion in corporate bonds in 2023, with maturities ranging from 3 to 30 years. The 10-year tranche priced at a yield of approximately 5.0%, reflecting Apple's AAA/Aaa credit rating — one of the highest ratings available. Investors accepted a lower yield than riskier issuers because Apple's creditworthiness made default essentially negligible.