what are corporate bonds 
corporate bonds are debt securities issued by a corporation in order to raise money to grow the business pay bills make capital improvements make acquisitions and for other business needs bonds are sold to investors and the company gets the capital it needs and in return the investor is paid a pre established number of interest payments at either a fixed or variable interest rate when the bond expires or reaches maturity the payments cease and the original investment is returned the backing for the bond is generally the ability of the company to repay which depends on its prospects for future revenues and profitability in some cases the company s physical assets may be used as collateral understanding corporate bondsin the investment hierarchy high quality corporate bonds are considered a relatively safe and conservative investment investors building balanced portfolios often add bonds in order to offset riskier investments such as growth stocks over a lifetime these investors tend to add more bonds and fewer risky investments in order to safeguard their accumulated capital retirees often invest a larger portion of their assets in bonds in order to establish a reliable income supplement in general corporate bonds are considered to have a higher risk than u s government bonds as a result interest rates are almost always higher on corporate bonds even for companies with top flight credit quality the difference between the yields on highly rated corporate bonds and u s treasuries is called the credit spread corporate bond ratingsbefore being issued to investors bonds are reviewed for the creditworthiness of the issuer by one or more of three u s rating agencies standard poor s global ratings moody s investor services and fitch ratings 123each has its own ranking system but the highest rated bonds are commonly referred to as triple a rated bonds the lowest rated corporate bonds are called high yield bonds due to the greater interest rate applied to compensate for their higher risk these are also known as junk bonds bond ratings are vital to alerting investors to the quality and stability of the bond in question these ratings consequently greatly influence interest rates investment appetite and bond pricing companies with solvency problems those trying to avoid bankruptcy and those in reorganization might also offer income bonds usually at an above average rate income bonds can raise money for the struggling company and are not required to pay coupons or dividend payments 