Another name for corporate bond is the term corporate bond. These are fixed-interest bonds or bonds issued by industrial companies.
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What is meant by corporate bonds?
The principle of the corporate bond consists in the company selling bonds (debentures) to investors (creditors). These investors in turn grant the issuer a loan. The debtor uses this borrowed capital for investments in his own company. The debtor is required to repay the loan on maturity or if the bond is sold prematurely.
Different types of bonds
Bond types by debtor:
- public bonds,
- bank bonds,
- corporate bonds.
Industrieanleihen sind handelbar als High yield bonds (High-Yield-Bonds) und als Mittelstandsanleihen.
High yield bonds are suitable for speculative investors. If the companies have poor credit ratings, these bonds offer variously higher yields. The disadvantage of high-yield bonds is a very high risk of default or total loss.
The idea behind SME bonds is that small and medium-sized companies receive an alternative solution to more expensive loans through exchange-traded bonds. In return, the investor is offered the prospect of a higher interest rate. Investing in medium-sized bonds is a high risk. It can lead to the total loss of the capital.
Criteria for Buying Industrial Bonds
In the case of corporate bonds, the issuer's creditworthiness is the most important assessment criterion. This criterion is set by rating agencies at certain intervals.
Determining factors for buying bonds are:
2. Price loss or price gain,
3. nominal interest rate,
4. ancillary costs,
5. Tax burden.
The ability to repay the loan are important parameters for the investor. The repayment can be made according to the repayment schedule or as a final one-off payment. An unscheduled settlement of debts is also possible in the event of early termination or repurchase on the stock exchange.
Advantages and disadvantages of bonds
The pros and cons of corporate bonds come from security and risk. The advantages include, for example, some lucrative returns, and the creditworthiness of the issuer of the bond. Industrial bonds are suitable for every type of investor and they can always be traded on the stock exchange. Your risk can easily be assessed based on the rating. Disadvantages result from the issuer risk. The market supply of bonds, some of which are risky, requires a certain knowledge of the bond supply.
- suitable for every investor,
- multi-year terms (up to 15 years),
- daily tradable on the exchange, even before the due date,
- Note large differences in bonds in terms of yield and security,
- Total loss possible.