2023: The Year of the Corporate Bond

2023: The Year of the Corporate Bond

Joel Colman

Joel Colman  -  29th July 2023

So, what’s the big deal about corporate bonds? Should you follow the trend and ensure that your portfolio includes them?

Read on for an in-depth look at this popular investment choice.

What is a corporate bond?

First things first. In simple terms, a corporate bond is debt issued by a company that’s sold to investors. The bond allows the company to raise the capital it needs. And in return, the investor is paid a series of interest payments, generally at a fixed rate. Once the bond expires, the interest payments stop, and the investor is repaid the original amount. Investopedia has more detail, if you’re interested.

Corporate bonds are rated. High-quality or investment-grade corporate bonds are offered by companies with a strong track record. Typically seen as a low-risk investment, they tend to have lower interest rates than high-yield or ‘junk’ bonds – those offered by companies who are struggling financially and are therefore more likely not to repay interest or the principal investment.

Corporate bonds are different to government (or sovereign) bonds – a debt security issued by a government. They’re considered lower risk investments than corporate bonds – as they’re backed by the government – but, unsurprisingly, pay lower interest rates as a result.

Why are corporate bonds so popular right now?

To answer this question, we have to step back and look at the wider financial picture. Sparked by the pandemic, the turbulent financial landscape in recent years has been dominated by rising inflation – with the situation reaching fever pitch over the last year. To try to contain inflation, central banks around the world have been raising interest rates, with the last 12 months witnessing hikes at frequencies not seen for a number of years.

These rising interest rates mean that the bond market – typically seen as the stock market’s rather boring younger sibling – is now experiencing higher yields than it has in the past decade. And investors have responded in droves: the first half of 2023 has seen a significant uptake, with investment-grade corporate bonds now performing at nearly a 20-year high.

What benefits do corporate bonds deliver?

In a nutshell, corporate bonds combine significant returns with relatively low risk. As a result, they bring stability, balance and diversity to your investment portfolio – giving your higher-risk investments, generally in the stock market, time to ride out turbulence and volatility.

Typically, investors pour more of their wealth into bonds the closer they get to retirement, while simultaneously decreasing the amount they put into riskier investments. And once you’re a retiree, you might be tempted to embrace bonds more than ever before, as they offer a reliable income supplement.

That said, the higher yields (caused by rising interest rates) are making corporate bonds increasingly attractive to investors at every stage of their investing lifecycle – with bonds that combine short timeframes with high rates and layers of security proving particularly popular.

How should you decide which corporate bonds to invest in?

Well, that’s the million-dollar question. And the answer isn’t simple, as not all corporate bonds are created equal. As we mentioned earlier, investment-grade bonds are the safest but not the highest yielding – while junk bonds bring an inevitably higher risk. Add to that, it’s important to be active in the selection and management of your corporate bonds.

Of course, there are myriad mass-market bonds offered by some of the world’s biggest companies. But at Hays Mews Capital, we take a boutique approach, handpicking best-in-class alternative investment opportunities for our clients.

We’re not tied to a particular asset type. Our focus is bespoke, quality investments spanning sectors as varied as property, commodities and FX. Plus, we only partner with companies with a long-standing and unblemished track record – those that have never defaulted on a repayment.

Leveraging our extensive experience, we take a meticulous approach to due diligence. From sector screening to accounts analysis, we look for companies whose board of directors have hundreds of years’ combined experience.

As a result, we bring you asset-backed alternative investment opportunities that deliver consistent returns of up to 12% per annum over a short term, generally 1 or 2 years. As an extra layer of security, all of the products we recommend have a regulated security trustee from a tier one jurisdiction.

Joel Colman
Joel Colman

Joel Colman

Co-Founder Director

2023 is turning into the year of the corporate bond. Let me help you find the right option for you. Book a free, no-obligations chat with using the link below at a time that suits you.

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