Corporate Bonds

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Below is information on corporate bond redemption. When a corporate bond’s principal is repaid, the corporate bond is considered redeemed. Redemption of Corporate Bonds usually occurs on the maturity date.

To reduce or refinance their outstanding Corporate Bonds obligations — particularly when interest rates decline — corporations may retire or call away Corporate Bonds prior to the Corporate Bonds‘ maturity.

It is important that you find out the potential bond redemption provisions of a corporate bond before investing in the corporate bond.

The following are the most common types of corporate bond redemption methods:

The Call – the first type of bond redemption

Many Corporate Bonds are issued with call features, enabling a company to call or retire a corporate bond at specific dates and prices, prior to maturity. To compensate for this potential early redemption, callable Corporate Bonds typically offer corporate bond holders higher yields, and a call premium, as opposed to non-callable Corporate Bonds.

Corporate Bonds are generally callable at par plus a premium (the specified amount over par that a holder receives). This premium amount gradually declines to par (face amount) as the corporate bond reaches maturity.

Refunding – the second type of bond redemption

With refunding, a corporation sells a new corporate bond issue, then uses the proceeds from the sale to retire an outstanding Corporate Bonds issue. As a corporate bond holder you are generally protected from refunding for a set period of time, usually five or 10 years, depending on the type of issue and its maturity date.

Sinking Fund – the final type of bond redemption

A sinking fund provision requires a corporation to retire a certain percentage of a corporate bond issue annually, at random — regardless of where interest rates are — until the entire issue is retired.

Like other bond redemption methods, sinking funds typically provide corporate bond holders with a specified protection period before the issuer can begin retiring the Corporate Bonds.

Corporate bond investing is an important part of bond investing especially for investors who are more conservative than aggressive. There are many types of bonds to invest in and corporate bond investing tend to be more attractive and flexible than most types of bond investing. Investors can buy Corporate Bonds at the initial Corporate Bond Offerings which can be more attractive or they can buy the bonds over the counter. Corporate bond investment yields are often higher than municipal bonds to compensate for the tax benefits and the safety backed by the government.

When investing in Corporate Bonds, consider the following factors.

Yield: the yields or interest rates are what most corporate bond investors look for when doing corporate bond investing. The higher the yield or interest rates, the better. However, other important factors need to also be considered.

Maturity date: The maturity date is important because your money will be tied up in the corporate bond for that period of time. If you need to get out of the Corporate Bonds you are in, it may not be the best financial decision you will make. So, plan well before doing any corporate bond investing.

Callability feature: The concept of locking in interest rates is well known in the mortgage industry. Corporate bond investing is similar in that if you plan to receive corporate bond interests for 30 years, having them called sooner may affect your financial plan adversely.

Price: Price is what would throw people off when investing in Corporate Bonds. Price is not always as it seems in corporate bond investing. You may be buying low but have unfavorable overall yield and risk factor. Sometimes, the price can be high but overall yield attractive.

Corporate bond rating: This is very important if you want to make sure you will get your interests and principal back. All Corporate Bonds are rated and the ratings are published.

• Investment Benefits of Corporate Bonds
• Corporate Bond Redemption