Corporate fixed income

Everything you need to know about issuances made by businesses

The fixed-income market, in all its forms and as we point out in all our publications regarding this type of asset, is the biggest financial market in the world, where governments, companies, and local administrations go in search of financing.

If we focus on issues made by companies, these usually fall into one of two groups, according to the company's payment capacity: investment grade (issuers with a high payment capacity) and high yield (issuers with a lower payment capacity):

  • Investment grade or Credit: the subset made up of fixed-income security issues carried out by companies with a high payment capacity.
  • High yield: the subset made up of issues carried out by companies with a lower payment capacity. In this case, being companies with a lower payment capacity and, therefore, a higher risk of non-payment, they offer higher coupons than investment-grade issues to compensate for the increase in risk.
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These markets are usually classified geographically. Therefore, on the one hand, investors will encounter European credit funds, U.S. credit funds, and Global credit funds, and, on the other hand, High-yield European funds, High-yield U.S. funds, and High-yield Global funds. Moreover, in each geographical region, we can find funds focused on short-term issues or on the full spectrum of maturities.

The performance of these funds is going to be influenced by interest rate variations and by changes in the financial health of the companies in which they invest. In the case of high yield, the financial health of the companies being invested in takes on a particular importance. In this regard, correctly selecting the companies to include in the portfolio, as well as the companies that should be ruled out at all costs, is key to the fund's returns.

Vocabulary to be taken into account

In addition to the definitions already provided for all investments in fixed-income securities, with regard to funds that invest in the credit market, we would highlight the following definitions:

  • Rate curve: also known as the term structure of interest rates, this is the graphical representation that sets out how the interest rate correlates to the different terms over which debt has been issued. In a normal situation there is a direct correlation, i.e. the longer the term, the higher the interest rate.
  • Rating: a credit quality score assigned by the rating agencies, which reflects the solvency of the issuer being analyzed. The best credit ratings are referred to as investment grade, while the worst are known as high yield.
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Why is investing in corporate bonds of interest? 

  • Collection of periodic interest.
  • Protection of the capital invested since the initial amount of the investment is recovered at the end of the bond's term.
  • Diversification since the investor can reduce the risk of their portfolios by combining it with other assets, such as equities.

Things to be taken into account when investing in corporate bonds

  • The payment capacity of the company that you lend to is crucial.
  • If the company cannot pay the interest and repay the loan within the established term, the investor could lose part or all of their money.
  • The loan term is also important. It is easier to know if the company will be able to repay the money within 5 years than within 30, since over such long periods many things can happen.
  • There are several private agencies that analyze different issuers and assign them a credit rating according to their creditworthiness. The most well-known agencies are Standard & Poor’s, Moody’s and Fitch. This allows us to compare different issuers using the same criteria.

Fund managers publish fund information sheets on a regular basis detailing the average rating of all the bonds in which the fund invests, together with other key data. If this fact sheet has been drawn up then you can see it by going to the "See documents" section within the fund's information on

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