lieu of the regular coupon. However, this is rare for corporate bonds. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. These are called callable bonds. A less common feature is an embedded put option that allows investors to put the bond back to the issuer before its maturity date. These are called putable bonds. Both of these features are common to the High Yield market. High Grade bonds rarely have embedded options. A straight bond that is neither callable nor putable is called a bullet bond. Other bonds, known as convertible bonds, allow investors to convert the bond into equity. They can also be secured or unsecured, senior or subordinated, and issued out of different parts of the company's capital structure. Valuation High Grade corporate bonds usually trade on credit spread. Credit spread is the difference in yield between the corporate bond and a Government bond of similar maturity or duration (e.g. for US Dollar corporates, US Treasury bonds). It is essentially the extra yield an investor earns over a risk free instrument as a compensation for the extra risk: thus, the better the quality of the bond, the smaller the spread between its required return and the yield to maturity (YTM) of the benchmark; see #Risk analysis below. This increased required return is then used to discount the bond's cash flows, using the present value formula for bonds, to obtain the bond's price. See for discussion, and for the math, Bond valuation. Derivatives The most common derivative on corporate bonds are called credit default swaps (CDS) which are contracts between two parties that provide a synthetic exposure with similar risks to owning the bond. The bond that the CDS is based on is called the Reference Entity and the difference between the credit spread of the bond and the spread of the CDS is called the Bond-CDS basis. Risk analysis Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends on the particular corporation issuing the bond, the current market conditions and governments to which the bond issuer is being compared and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds. The difference in yield (called credit spread) reflects the higher probability of default, the expected loss in the