AAA Corporate Bonds - What You Must Know

Corporate bonds or corporates are debts or IOUs issued by private and public companies. These bonds are usually issued in multiples of 1000 USD or 5000 USD. Why do companies issue debt? Usually, this is to raise cash to fuel growth. This cash would help purchase equipment, make more funds available for R&D and all sorts of channels that will fuel company sales and growth.

In essence when you are buying a corporate bond, you are giving the company a loan. In return the corporation will pay you interest at specified periods of time (usually every 6 months) till the date of maturity. At maturity of the bond, you will get your principal back. Its important to note that the interest payments received on corporate bonds are taxable.

What is AAA? It is the highest rating given by the bond rating agencies such as Moody's and Standard & Poor's. The higher the rating the lower the risk of default or of losing money on the bond. In other words, the AAA rating is as close to no-risk of default as you would get.

So AAA Corporate bonds are highest-rated corporate bonds out there. You might here of the Moody's AAA Corporate Bond, also known as 'Moody's AAA'. This is an investment bond that acts as index of all the AAA-rated bonds (by Moody's). For economics buffs, its useful to know that this corporate bond is used as an alternative to the 10-year Treasury bill as an indicator of the interest rate.

To learn more about corporate bonds, click here.