Corporate bond

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Corporate bonds are the longer term corporate debt instruments issued by corporations to finance growth, compared to shorter-term commercial paper which funds operations.

Corporate bonds, typically issued in denominations of $1,000 or $5,000, have maturities exceeding one year and are used to fund long-term operations relating to growth. Unlike with municipal bonds, the interest income from such bonds is taxable, although some corporate bonds are issued as zero-coupon without annual interest payments.[1]

History

The freeze in global credit markets has widened the spread between U.S. AAA-rated corporate bonds widened from 203 basis points (bps) in January 2008 to 491 in early October, a record.[2] Meanwhile, yields on Indian corporate bonds continued to rise as foreign banks, spooked by the spreading credit crisis, widening the spread there on corresponding Treasury bonds from 250 to 362 bp in under a week.[3]

In December of 2010, there was a rush to issue corporate bonds while yields remained low. The Federal Reserve announced details of a bond-buying program called "QE2". In response, the yield on the 10-year US Treasuries rose from 2.57 percent on Nov. 3 to 3 percent on Dec. 3. It dropped back to 2.95 per cent on Dec. 6 after Ben Bernanke said that QE2 would be extended in 2011 if US employment didn't improve. [4]

References

  1. What are Corporate Bonds?. SIFMA.
  2. Bank Writeoffs May Rise, Bond Spreads Fall on TARP. Bloomberg.
  3. Corporate bonds rise 30 bps on foreign banks sell papers. Business Standard.
  4. Corporate bond sales rise at year-end. Financial Times.