A corporate bond is a bond
issued by a corporation. The term is usually applied to longer-term debt
instruments, generally with a maturity date falling at least a year after their
issue date. (The term "commercial paper" is sometimes used for instruments with
a shorter maturity.)
Sometimes, the term "corporate bonds" is used to include all bonds except
those issued by governments in their own currencies. Strictly speaking, however,
it only applies to those issued by corporations. The bonds of local authorities
and supranational organizations do not fit in either category.
Corporate bonds are often listed on major exchanges (bonds there are called
"listed" bonds) and ECNs like MarketAxess, and the coupon (i.e. interest
payment) is usually taxable. Sometimes this coupon can be zero with a high
redemption value. However, despite being listed on exchanges, the vast majority
of trading volume in corporate bonds in most developed markets takes place in
decentralized, dealer-based, over-the-counter markets.
Some corporate bonds have an embedded call option that allows the issuer to
redeem the debt before its maturity date. Other bonds, known as convertible
bonds, allow investors to convert the bond into equity.
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