Glossary · UK
What is Corporate Bond?
A loan made by an investor to a company in return for regular interest payments and repayment of the original amount at a set maturity date.
Full Definition
A corporate bond is a debt instrument issued by a company to raise money, under which the investor lends the company a fixed sum in return for regular interest payments (the "coupon") over an agreed period, with the original amount lent (the principal) repaid at a set maturity date, assuming the company does not default. Corporate bonds are generally considered higher risk than UK government bonds (gilts) because a company is more likely to fail to make payments than the UK government, so corporate bonds usually pay a higher yield to compensate investors for that extra credit risk, with the size of that extra yield -- the "credit spread" -- reflecting the market's view of how likely that particular company is to default, as assessed partly through credit ratings from agencies such as Moody's, S&P and Fitch. A Qualifying Corporate Bond (QCB) benefits from a specific Capital Gains Tax exemption on disposal for UK individuals, while non-qualifying corporate bonds do not, which is a key technical distinction for UK investors holding bonds outside a tax wrapper such as an ISA or SIPP. UK retail investors can access corporate bonds directly, through a bond fund or Open-Ended Investment Company, or via an Exchange-Traded Fund that holds a diversified basket of corporate bonds, which spreads the default risk of any single issuer across many holdings.