StateTrust Investments provides clients with a state-of-the-art, far-reaching platform connected to all major market centers. This service provides direct market access and coverage to clients investing in Corporate Bonds globally. Whether clients are looking for United States, European, Asian or Emerging Market bonds, our team of professional traders are ready to help clients fulfill their corporate bond investment needs.
StateTrust has implemented a proprietary electronic fixed income trading platform with Bloomberg services that allows clients to search for fixed income securities by optionally selecting region, issuer, currency, and/or maturity.
What are Corporate Bonds?
A Corporate bond is a class security issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date of at least a year. The term "Commercial Paper" is sometimes used to refer to instruments with a shorter maturity.
Corporate Bonds are often listed on major exchanges. However, despite being listed on exchanges, the vast majority of trading volume in corporate bonds in most developed markets takes place in decentralized, dealer-based, over-the-counter (OTC) markets.
Please note: Investments in corporate bonds are subject to various interest rate risks.
Benefits of Investing in Corporate Bonds
The principal benefits of investing in Corporate Bonds are:
Risk of Investing in Corporate Bonds
Corporate bonds generally have a higher risk of default when compared to government bonds. This risk depends upon the particular corporation issuing the bond, current market conditions, industry changes affecting the company, changes in government laws/regulations and the credit rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds.
The most important risks associated with Corporate bonds are:
Corporate Bond Term
One key investment feature of any bond is its maturity. A bond's maturity tells you when you should expect to get your principal back, and how long you can expect to receive interest payments.
In general, Corporate bonds can be divided into three maturity groups:
Relationship between Bond Price and Interest Rates
Like all bonds, corporate bonds tend to rise in value when interest rates fall, and they fall in value when interest rates rise. Usually, the longer the maturity, the greater the degree of price volatility. If you hold a bond until maturity, you may be less concerned about these price fluctuations (which are known as interest-rate risk, or market risk), because you will receive the par, or face, value of your bond at maturity.
When interest rates rise, new issues come to market with higher yields than older securities, resulting in those older securities being worth less. Hence, their prices go down. When interest rates decline, new bond issues come to market with lower yields than older securities, resulting in those older, higher-yielding securities being worth more. Hence, their prices go up. As a result, if you have to sell your bond before maturity, it may be worth more or less than you paid for it.
Various economic forces affect the level and direction of interest rates in the economy. Interest rates typically climb when the economy is growing, and fall during economic downturns. Similarly, rising inflation leads to rising interest rates (although at some point, higher rates themselves become contributors to higher inflation), and moderating inflation leads to lower interest rates. Inflation is one of the most influential forces on interest rates.
Yield is a critical concept in bond investing, because it is the principal tool used to measure the investment return.
Yield is the internal rate of return of all the cash flows on the corporate bond investment. There are many ways to measure yield, but the most importance Yield calculation to most investors are:
How Corporate Bonds Are Taxed
The following is general basic information on tax aspects for individuals investing in corporate bonds. For advice about your specific situation, you should always consult with your tax adviser.
Investors should carefully review the objectives, risks, charges and expenses of any investment company before investing. Prospectus and, if available, the summary prospectus, contains important information about the investment company. You can contact us to request our prospectus, which we encourage you to read carefully. The value of your investment may fluctuate, and when redeemed, shares may be worth more or less than their original cost. Investments in a fund (Investment Company) are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
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