[1] It is a longer-term debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under specific terms.
[2] Corporate debt instruments with maturity shorter than one year are referred to as commercial paper.
[1] The term sometimes also encompasses bonds issued by supranational organizations (such as European Bank for Reconstruction and Development).
[6] For example, many pension funds and insurance companies are prohibited from holding more than a token amount of High Yield bonds (by internal rules or government regulation).
Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date.
They can also be secured or unsecured, senior or subordinated, and issued out of different parts of the company's capital structure.
The difference in yield - called credit spread - reflects the higher probability of default, the expected loss in the event of default, and may also reflect liquidity and risk premia; see Bond credit rating, High-yield debt.
This explains, for example, the Option Adjusted Spread on a Ginnie Mae MBS relative to the Treasury curve.
Speaking in 2005, SEC Chief Economist Chester S. Spatt offered the following opinion on the transparency of corporate bond markets: Frankly, I find it surprising that there has been so little attention to pre-trade transparency in the design of the U.S. bond markets.
[14]A combination of mathematical and regulatory initiatives are aimed at addressing pre-trade transparency in the U.S. corporate bond markets.
[15] Taking advantage of the very low borrowing costs, the computer maker intended to sell CHF-denominated bonds for the first time.