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Why do corporate bonds have a high yield potential?

Why do corporate bonds have a high yield potential?

What are bonds and how to work with them?

 

At their core, bonds are promissory notes certifying that a company or government has borrowed money from one or another participant in the stock market. Bonds are one of the oldest and most popular financial instruments that emerged at the same time as the emergence of the first exchanges. This asset is good because it is simple and understandable to everyone, everyone who has the opportunity to participate in transactions in the financial markets can trade or invest in bonds. The most popular, but not the most profitable bonds are OFZ (Federal Loan Bonds). By purchasing OFZs, the nominal value of which is usually one thousand rubles, the owner of such a bond becomes a creditor to the state, and the state becomes a debtor to the investor who bought the bond.

 

Reliability of corporate bonds

 

Corporate bonds are a type of IOUs issued by both private and public companies. Bonds are also issued by such giants as PJSC Gazprom and OJSC Russian Railways. The main difference between corporate bonds and OFZs is the ratio of risk and return. It is obvious that OFZs are much more reliable, since the state itself acts as the guarantor of the fulfillment of financial obligations, and in the case of corporate bonds, only the company that issued these bonds is the guarantor. Although the recent situation with the bonds of the Rusnano group has significantly undermined investor confidence even in state-owned companies. The reliability of the issuing companies, as we understand it, can be different. Usually, the reliability of the issuing company is indicated in brokerage applications by the sign * (* - low level of reliability, *** - high level of reliability).

 

Bonds as a protective part of the investment portfolio

 

I must say that corporate bonds, as a rule, offer a higher interest rate than OFZ and bank deposits. But the risk when investing in corporate bonds is also higher than when investing in OFZs. Often, the interest that can be obtained by investing in OFZ is on the same level with the rates on bank deposits in the largest Russian banks. If you want to take risks, but in the long term to get a higher yield, you can choose corporate bonds, but before deciding to invest in such securities, you need to carefully study the financial condition of the company that issued these bonds. If your investment strategy corresponds to an average degree of risk, then it is quite possible to use OFZs for the stability and sustainability of your investment portfolio. (Not an individual investment recommendation!)

06.12.2021
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