Corporate Bond

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Definition of 'Corporate Bond'

A corporate bond is a type of debt security issued by a corporation. It is a loan that the corporation borrows from investors, and the investors receive interest payments in return. Corporate bonds are typically rated by credit agencies, and the interest rate on a corporate bond will depend on its credit rating.

Corporate bonds are often used to finance capital expenditures, such as the purchase of new equipment or the construction of a new building. They can also be used to refinance existing debt or to pay for a merger or acquisition.

Corporate bonds are considered to be a relatively safe investment, as they are backed by the credit of the issuing corporation. However, the interest rate on a corporate bond will be higher than the interest rate on a U.S. Treasury bond, which is considered to be the safest investment.

There are two main types of corporate bonds:

* **Secured bonds** are backed by specific assets of the issuing corporation. If the corporation defaults on the bond, the bondholders can seize the assets that secure the bond.
* **Unsecured bonds** are not backed by any specific assets. If the corporation defaults on the bond, the bondholders have no recourse other than to sue the corporation.

Corporate bonds can be issued in a variety of denominations, and they can have maturities of any length. The most common maturity is 10 years, but corporate bonds can be issued with maturities of up to 30 years.

Corporate bonds are traded on the secondary market, and their prices can fluctuate based on a variety of factors, including the credit rating of the issuing corporation, the interest rate environment, and the economic outlook.

Corporate bonds can be a good investment for investors who are looking for a higher yield than what is available on U.S. Treasury bonds. However, it is important to remember that corporate bonds are not as safe as U.S. Treasury bonds, and they can lose value if the issuing corporation defaults.

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