WHAT ARE CORPORATE BONDS?
Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and/or $5,000. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding the business.

When you buy a bond, you are lending money to the corporation that issued it. The corporation promises to return your money, or principal, on a specified maturity date. Until that time, it also pays you a stated rate of interest, usually semiannually. The interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do not give you an ownership interest in the issuing corporation.

HOW BIG IS THE MARKET AND WHO BUYS?
The corporate bond market is large and liquid, with daily trading volume estimated at $23 billion. Issuance for 2002 was an estimated $594 billion. The total market value of outstanding corporate bonds in the United States at the end of 2002 was approximately $4.1 trillion.

Most corporate bonds trade in the over-the-counter (OTC) market. This market does not exist in a central location. It is made up of bond dealers and brokers from around the country who trade debt securities over the phone or electronically. Market participants are increasingly utilizing electronic transaction systems to assist in the trade execution process.

Some bonds trade in the centralized environments of the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX), but the bond trading volume on the exchanges is small. The OTC market is much larger than the exchange markets, and the vast majority of bond transactions, even those involving exchange-listed issues, take place in this market. ...

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CONTENTS
What Are Corporate Bonds?
How Big Is the Market and Who Buys?
Benefits of Investing in Corporate Bonds
Types of Issuers
Basic Terms of Bonds
Understanding Interest-Rate Risk
Understanding Yields
Understanding “Call” and Refunding Risk
Understanding Collateralization
Understanding Credit Risk
Bond Funds
How Corporate Bonds Are Taxed
Other Basic Facts
Glossary

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