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Corporate Bonds |
| Bonds that are issued by individual companies to fund general operations and
long-term expansion are referred to as Corporates. Corporate issuance
can be broken down into the four main types of corporations: industrial,
financial, utility, and yankee. Similar to equities, corporate bonds
are issued by many different types of companies with varying levels of
financial strength. Unlike stock market investors, however, bond
investors are less concerned with a company's ability to meet its next
earnings estimate and more concerned with a company's credit worthiness
and the risk level of a default on interest and principal payments prior
to maturity. Bond investors are aided in their analysis of credit strength of a company by two primary bond rating agencies: Moody's and Standard & Poor's. Both rating agencies rate company debt in a similar way as shown in chart 2. An important ratings break point for companies is a rating of investment grade, which is a rating above the minimum of BAA3/BBB-. A lower rating would constitute non-investment grade; commonly referred to as high yield, or junk. |