Corporate bonds (also called “corporates”) are debt obligations, or IOUs, issued by privately- and publicly-owned corporations. When you buy a corporate bond, you essentially lend money to the entity that issued it. In return for the loan of your funds, the issuer agrees to pay you interest and to return the original loan amount – the face value or principal – when the bond matures or is called (the “maturity date” or “call date”). Unlike stocks, corporate bonds do not convey an ownership interest in the issuing corporation. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business.
Investors buy corporates for a variety of reasons: