• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

Individual Bonds: Corporate

Corporate bonds are debt obligations issued by corporations to fund capital improvements, expansions, debt refinancing, or acquisitions. Interest is subject to federal, state, and local taxes.

Reasons to consider corporate bonds

Find corporate bonds

Find Bonds

The range of corporate bonds issued each year allows investors to tailor a bond portfolio around their specific needs. The various types of corporate bonds offer different risk levels, as well as varying yields and payment schedules.

Fixed-rate coupons
The most common form of corporate bond is one that has a stated coupon that remains fixed throughout the bond’s life. It represents the annual interest rate, usually paid in two installments every six months, although some bonds pay annually, quarterly, or monthly. The payment amount is calculated as a percentage of the par value, regardless of the purchase price or current market value. With corporate bonds, one bond represents $1,000 par value, so a 5% fixed-rate coupon will pay $50 per bond annually ($1,000 × 5%). The payment cycle is not necessarily aligned to the calendar year; it begins on the "Dated Date," which is either on or soon after the bond’s issue date, and ends on the bond’s maturity date, when the final coupon and return of principal payment are paid.

Investment grade vs. non-investment grade (high yield)
Corporate bonds are generally rated by one or more of the three primary ratings agencies: Standard & Poor’s, Moody’s, and Fitch. These firms base their ratings on the bond issuer’s financial health and likely ability to make interest payments and return the bondholders’ principal. Rated bonds fall into one of two categories: investment grade or non-investment grade (also known as high yield). Investment grade bonds are considered to be lower risk and, therefore, generally pay lower interest rates than non-investment grade bonds, though some are more highly rated than others within the category. Non-investment grade bonds are considered to be higher risk or speculative investments. The higher yield reflects an increased risk of default. A company’s financial health can change, and when it does, its bonds’ ratings may change as well. So an investment grade bond could become non-investment grade over time and vice versa.

Zero-coupon
Zero-coupon corporate bonds are issued at a discount from face value (par), with the full value, including imputed interest, paid at maturity. Interest is taxable, even though no actual payments are made. Prices of zero-coupon bonds tend to be more volatile than bonds that make regular interest payments.

Floating-rate*
The coupon on a floating-rate corporate bond changes in relationship to a predetermined benchmark, such as the spread above the yield on a six-month Treasury or the price of a commodity. This reset can occur multiple times per year. The coupon and benchmark can also have an inverse relationship.

Variable- and adjustable-rate*
Variable- and adjustable-rate corporate bonds are similar to floating-rate bonds, except that coupons are tied to a long-term interest rate benchmark and are typically only reset annually.

Callable and puttable
The issuer of a callable corporate bond maintains the right to redeem the security on a set date prior to maturity and pay back the bond’s owner either par (full) value or a percentage of par value. The call schedule lists the precise call dates of when an issuer may choose to pay back the bonds and the price at which they will do so. The callable price is generally expressed as a percent of par value, but other all-price quotation methods exist.

With a puttable security, or put option, the investor has the right to put the security back to the issuer, again at a set date or a trigger event prior to maturity. A common example is the “survivor’s option,” whereby if the owner of the bond dies, the heirs have the ability to put back the bond to the issuer and typically receive par value in return.

Step-up*
Step-up corporate bonds pay a fixed rate of interest until the call date, at which time the coupon increases if the bond is not called.

Step-down*
Interest on step-down securities is paid at a fixed rate until the call date, at which time the coupon decreases if the bond is not called.

Convertible*
Convertible bonds can be exchanged for a specified amount of the common stock of the issuing company, although provisions generally restrict when a conversion can take place. While these bonds offer the potential for appreciation of the underlying security, prices may be susceptible to stock market fluctuations.

* These types of corporate bonds are not available to purchase through Fidelity.

Next steps

Find corporate bonds. Choose from 40,000 new issue and secondary market bonds & CDs, and approximately 60,000 total offerings with our Depth of Book.

Learn about fixed income alerts. Get updates on new issue or secondary corporate bonds sent to your wireless device or Fidelity.com inbox.

Sign up for alerts.

Learn about the CorporateNotes ProgramSM. Buy new issue corporate bonds directly through the issuer with this Fidelity program.
Focus is on tooltip

basis point

one one-hundredth (1/100 or 0.01) of one percent; used to express the yield

Focus is on tooltip

call provision

a feature of a bond or other security that determines the terms under which it can be redeemed by the issuer before the scheduled maturity

Focus is on tooltip

coupon

the interest rate a bond's issuer promises to pay to the bondholder until maturity, or other redemption event; generally expressed as an annual percentage of the bond's face value

Focus is on tooltip

credit risk

the risk that the issuer of a fixed-income security may not be able to make regularly scheduled interest payments or repay the principal at maturity

Focus is on tooltip

debt obligation/principal

an interest-bearing promise, to pay a specified sum of money (the principal amount) on a specific date; bonds are a form of debt obligation; categories of bonds are: corporate, municipal, treasury, agency/GSE

Focus is on tooltip

default

occurs when a bond issuer fails to make either an interest payment or principal repayment on its bonds as they come due, or fails to meet some other provision of the bond indenture

Focus is on tooltip

face value

the stated value of an investment at maturity; the face value for a corporate bond is typically $1,000; also known as par value or par amount

Focus is on tooltip

fixed income

a type of asset class in which the investments provide a return in two possible forms; coupon paying bonds have fixed periodic payments and a return of principal; zero coupon bonds are sold at a discount, do not pay a coupon, and have a return of principal plus all accumulated interest at maturity

Focus is on tooltip

indenture

a contract that explains the various terms, options and intricacies of a bond

Focus is on tooltip

interest

the amount paid by a borrower to a creditor, or bondholder, as compensation for the use of borrowed money

Focus is on tooltip

interest rate

the annual rate, expressed as a percentage of principal, payable for use of borrowed money

Focus is on tooltip

issuer

a government, corporation, municipality, or agency that has issued a security (e.g., a bond) in order to raise capital or to repay other debt; the issuer goes to an underwriter to get their securities sold in the new issue market; for certificates of deposit (CDs), this is the bank that has issued the CD; in the case of fixed income securities, the issuer of the security is the primary determinant of the security's characteristics (e.g., coupon interest rate, maturity, call features, etc.)

Focus is on tooltip

maturity, maturity date(s)

the date on which the principal amount of a fixed income security is scheduled to become due and payable, typically along with any final coupon payment. It is also a list of the maturity dates on which individual bonds issued as part of a new issue municipal bond offering will mature

Focus is on tooltip

Moody's

an independent organization that assigns credit ratings to debt instruments and securities to help investors assess credit risk

Focus is on tooltip

new issue

a security publicly offered for sale for the first time

Focus is on tooltip

payment schedule

the frequency with which a fixed-income security pays interest (e.g., monthly, quarterly, semi-annually, yearly)

Focus is on tooltip

par

the stated value of an investment at maturity; includes bonds, life insurance policies, bank notes, currency, some stocks, and other securities; typically $1,000 for a corporate bond

Focus is on tooltip

par value

the stated value of an investment at maturity; includes bonds, life insurance policies, bank notes, currency, some stocks, and other securities; typically $1,000 for a corporate bond

Focus is on tooltip

premium

if the opening price of an IPO in the secondary market is higher than its offering price, the difference would be the premium

Focus is on tooltip

principal repayment

the payment of the face value of a bond or CD by the issuer, this can be due to the securities reaching maturity date, or because the issuer redeemed the securities prior to maturity due to a call or other form or redemption

Focus is on tooltip

redeem

the act of an issuer calling, or purchasing a fixed-income security from the holder, generally at face value, prior to the stated maturity date

Focus is on tooltip

Standard & Poor's (S&P) Corporation

an independent company that provides investors with market intelligence in the form of credit ratings, indices, investment research and risk evaluations and solutions

Focus is on tooltip

Treasuries

debt obligations of the U.S. government that are issued at various intervals and with various maturities; revenue from these bonds is used to raise capital and/or refund outstanding debt; since Treasury securities are backed by the full faith and credit of the U.S. government, they are generally considered to be free from credit risk and thus typically carry lower yields than other securities; the interest paid by Treasuries is exempt from state and local tax, but is subject to federal taxes and may be subject to the federal Alternative Minimum Tax (AMT); U.S. Treasury securities include Treasury bills, Treasury notes, Treasury bonds, zero-coupon bonds, Treasury Inflation Protected Securities (TIPS), and Treasury Auctions

Focus is on tooltip

yield

the percentage of return an investor receives based on the amount invested or on the current market value of holdings; it is expressed as an annual percentage rate; yield stated is the yield to worst — the yield if the worst possible bond repayment takes place, reflecting the lower of the yield to maturity or the yield to call based on the previous close

Focus is on tooltip

zero-coupon bond

a bond where no periodic interest payments are made; the investor purchases the bond at a discounted price and receives one payment at maturity that usually includes interest; they have higher price volatility than coupon bonds as a result of interest rate changes

Questions?

Fidelity Learning Center

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties.

Diversification/asset allocation does not ensure a profit or guarantee against loss.

623704.1.2