Bonds & Fixed Income
Corporate bonds are debt issued by companies. They can offer higher yields than UK government bonds in return for taking additional credit risk, but both income and capital remain at risk.
Company debt
You are lending money to a company rather than buying an ownership stake.
Income & maturity
Corporate bonds may pay coupons and normally have a defined maturity date.
Capital at risk
The issuer may fail to make payments and market prices can fall.
Educational information only — not personalised advice. Capital is at risk.
Example
A simple illustrative example can make the key terms easier to understand.
Illustrative example — not a current bond offer
This is an educational example only. Coupon and principal payments depend on the issuer meeting its obligations.
Coupon is not the same as return
The return you ultimately receive depends on the price you pay, the bond’s cash flows, maturity and whether the issuer meets its obligations.
Mechanics
A company issues bonds to borrow from investors.
You pay the purchase price and become a creditor of the company.
Interest is paid according to the bond’s terms, assuming the issuer can meet the payments.
Principal is normally due for repayment at maturity, subject to the company meeting its obligations.
Credit quality
Bonds rated within investment-grade categories by credit-rating agencies.
Bonds with lower credit ratings, sometimes described as speculative-grade debt.
Higher yield usually means taking additional risk — it is not simply “better interest”.
Income measures
The interest rate stated in the bond’s terms.
5% on £1,000 nominal value = £50 a year
What investors are currently willing to pay for the bond.
A measure of return that reflects the price being paid and the bond’s cash flows.
Coupon and yield are not the same thing.
The coupon may remain unchanged while the bond’s market price — and therefore its yield — moves.
Price and yield
When the market price changes, the return implied by the bond’s fixed cash flows changes too.
Bond price ↓
Yield generally ↑
Bond price ↑
Yield generally ↓
Credit spread
Investors generally demand additional return for taking company-specific credit risk rather than lending to the UK government.
Conceptual relationship — not a pricing formula
The credit spread can widen or narrow as investors’ views of the company, sector or wider economy change.
Ratings
Credit ratings are opinions from rating agencies about the ability of an issuer or bond to meet its financial obligations.
Generally stronger credit quality
Investment grade
Generally higher credit risk
High yield / speculative grade
Ratings can change and do not guarantee repayment.
If a rating agency lowers its assessment of the issuer or bond, investors may demand a higher yield and the bond’s market price can fall.
Capital structure
Exact creditor ranking depends on the bond documentation and the issuer’s capital structure.
Debt backed by specified assets or security according to the bond terms.
Generally ranks ahead of subordinated creditors but does not have specific pledged security.
Ranks behind senior debt and can involve greater loss risk if the issuer fails.
Interest-rate sensitivity
The date when principal is due for repayment according to the bond’s terms.
A measure commonly used to understand how sensitive a bond or bond portfolio may be to changes in interest rates.
Generally less sensitive to interest-rate changes.
Generally more sensitive to interest-rate changes.
Risk
Corporate bonds can lose money. Credit quality, liquidity and interest-rate sensitivity vary by issuer and bond.
The issuer may fail to make interest payments or repay principal.
A deterioration in credit quality can reduce the bond’s market value.
Bond prices can fall when market interest rates or yields rise.
Corporate bond prices can fall if investors demand greater compensation for credit risk.
Some corporate bonds may be difficult or expensive to sell at an attractive price.
Fixed coupon payments can lose purchasing power when inflation rises.
Default
Bondholders are creditors of the company. If an issuer enters financial distress or insolvency, the amount investors recover can depend on the bond’s security, seniority, the assets available and the restructuring or insolvency process.
Ranking ahead of shareholders does not guarantee that bondholders recover all of their money.
Compare structures
Neither structure is automatically better. They differ in concentration, maturity behaviour and costs.
| Feature | Individual corporate bond | Bond fund / ETF |
|---|---|---|
| Exposure | One issuer / bond | Portfolio of bonds |
| Maturity | Defined maturity date | Fund normally has no single maturity |
| Credit risk | Concentrated | Spread across multiple holdings |
| Coupon | Defined by bond | Portfolio income/distributions |
| Diversification | Limited individually | Usually broader |
| Market value | Bond price changes | Fund price/NAV changes |
| Principal at maturity | Normally due if issuer meets obligations | No single maturity-date repayment |
| Costs | Trading/platform costs | Fund charge + trading/platform costs |
Exposure
Maturity
Credit risk
Coupon
Diversification
Market value
Principal at maturity
Costs
Access
Availability varies. Some retail investors may be able to buy certain corporate bonds through a broker or platform, or obtain exposure through corporate-bond funds and ETFs.
Some investment platforms and brokers provide access to individual corporate bonds.
Retail access depends on the particular bond and how it is distributed.
Funds can provide diversified exposure across multiple issuers and maturities.
Availability varies. Retail investors may not be able to buy every corporate bond easily through every platform.
Checklist
Use this as a general checklist — not personalised investment advice.
Some bonds allow the issuer to repay them before the scheduled maturity date under specified conditions.
Check the individual bond documentation. Not all corporate bonds are callable.
UK wrappers
Eligible fixed-income investments may be held within tax-advantaged wrappers such as Stocks & Shares ISAs or pensions, depending on the product and platform.
Tax treatment depends on your circumstances and rules can change.
FAQs
Educational answers on corporate-bond mechanics and risk — not personalised advice.
Related
Educational information only. Not personalised advice. Capital at risk where you invest.
Last reviewed: 26 August 2026
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