What are some benefits of U.K. corporate bonds?


Quick Answer

Benefits of corporate bonds in the United Kingdom include diversification opportunities for a portfolio and higher interest rates and yields than government bonds, and they provide a source of steady income, according to Pimco. Corporate bonds also tend to have greater liquidity, meaning investors can generally sell a corporate bond before its maturity date on a secondary trading market that is both large and active.

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Full Answer

Corporate bonds allow individuals to invest in different economic sectors offering a wide variety of risk and yield, informs Pimco. This offers investors the ability to diversify an equity portfolio or a portfolio that may otherwise consist of fixed income securities. As a source of steady income, most corporate companies pay interest on a corporate bond on a regular schedule unless the bond is zero-coupon. In the case of zero-coupon bonds, there are no interest payments on the bond, but the purchase price is typically much cheaper than the redemption price upon maturation of the bond.

Corporate bonds are typically independently rated by credit agencies, which can benefit investors, states Pimco. Companies with a lower credit rating are considered speculative-grade and are therefore higher risk than other corporate bonds. However, greater risk means higher interest rates or yields. Companies with fluctuating credit scores may also offer higher interest rates or yields.

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