News & Resources

The benefits and credit risks of corporate bonds

Jan 22, 2013 Walt Wojciechowski

Credit risk management continues to be a difficult issue for most businesses and investors, as economic conditions teeter between healthy and dangerous without any form of regularity. Businesses need to keep a close eye on the ebb and flow of consumer credit, corporate credit and overall political and economic trends to ensure the most sound decision-making and highest returns on investment.

Seeking Alpha recently explained some of the finer points of credit risk management regarding corporate bonds, stating that these investments represent a bigger threat than government-issued bonds. According to the news provider, the benefit of these investments is that the buyer can demand a return, one that is at least enough to cover the risk they are taking should the issuing company default due to bankruptcy.

The source explained that the best methods of research involve a mixture of standard credit reporting agencies' ratings mixed with alternative credit scoring when necessary. Seeking Alpha said that high-yield bonds are always the most profitable, and can be particularly advantageous in that they are often not as vulnerable to interest rate shifts as other corporate bonds.

Businesses that are not completely comfortable with credit risk management should consider using a firm that specializes in the associated tasks to ensure secure and savvy decision-making.