Economy & context
Corporate bonds are company debt securities with contractual interest and repayment terms. Their yields combine benchmark rates, credit risk, liquidity and contract features.
Make it click
Two company IOUs can promise similar payments while one is secured, senior and short-dated and the other ranks lower. Contract position changes recovery risk.
Now put that into markets
Companies issue bonds to fund operations, investment or refinancing. Bondholders rank ahead of ordinary shareholders but still face default.
Covenants, call rights, security, maturity and seniority affect value. Credit spread is measured over a comparable benchmark under a convention.
Read prospectus, issuer finances, debt ladder and ranking. Use yield with duration, spread and recovery assumptions.
A high yield can compensate for real danger rather than provide easy income. Liquidity can disappear well before default.
Takeaway
