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Description of a Corporate Bond 

• The name of the issuer. 

The characteristics of the issuer also have an effect on the behavior of the bond. The characteristics of the issuer most directly impact the likelihood of repayment, or credit risk, of a bond. Treasury securities carry the highest credit rating, followed by  government agencies and then corporate issuers. Both corporate and public ( municipalities, sewer districts, housing  authorities, bridge and tunnel authorities, etc.) debt issuers are rated as to the degree of credit risk of their bonds by one or both of the major credit rating agencies, Moody's and Standard and Poor's.  Standard & Poor's assigns credit ratings to corporate and municipal bonds. AAA (Triple A) is the highest rating assigned by  Standard & Poor's to a debt obligation. It indicates an extremely strong capacity to pay principal and interest. Bonds rated  AA are just a notch below, then single A, then BBB, and so on. Some ratings show a + or - sign to further differentiate  creditworthiness. A bond with a BBB rating means that the issuer has an adequate capacity to pay principal and interest, but  less so than an issuer with an A rating under adverse economic conditions or changing circumstances.  Bonds rated BBB- and above are referred to as investment grade, a category to which certain investors, including many  pension funds, confine their bond holdings. Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as  predominantly speculative. A bond rating of D indicates payment default, or the filing of a bankruptcy petition. (Other firms  also assign credit ratings to bonds, and their opinions and terminology may differ from those of Standard & Poor's.)  

• The months and dates when interest is paid. 
• The bond's coupon or interest rate. 

The level and timing of coupon payments also has an effect on the pricing and yield of a bond. Although coupons are quoted  at an annual rate, they are most frequently paid to the investor twice a year. Almost all corporate bonds will pay their interest either on the first or the fifteenth of two months. The two months are usually six months apart. Bonds also may  pay  interest monthly, quarterly, or annually, but these payment schedules are less common. Some bonds are issued aszero coupon bonds and repay only the initial principal amount at maturity. These bonds trade at a fraction of their principal, or maturity value.   The interest rate is usually expressed as a percentage of the bond's $1000 face value.  If a corporate bond is trading in the market place for a price other than par, then its price is expressed in points and eighths of a point that equals $10 each. For example, a price of $86 3/8 means: 

 

(86 X $10.00) + (3/8 X $10.00) = $860.00 + $3.75 = $863.75 

• The year the bond matures. 

One of the most important features of any bond is its maturity. The year the bond matures is expressed without the first two  digits so 1991 is expressed as '91. Inflation, and expected interest rates, have their greatest effecton coupon or principal  payments that are far off in the future; bonds with longer maturities typically exhibit more volatile pricebehavior thanbonds  with shorter maturities. Longer maturities also increase the possibility that there can be a change in the credit quality of the issuer.  

For example, the following bond is described as:

      IBM-JJ15- 7% of '01.