An introduction to corporate bonds for everyday investors

What are corporate bonds?

Most every day investors know very little about corporate bonds. This may be because they’re less covered in the media than shares, despite being an important part of global markets. The asset class has generated consistent returns over time for the largest institutions in the world. They can sometimes be less volatile than equities, and sometimes generate better returns (although this isn’t guaranteed).

Corporate bonds are issued by FTSE size companies which have annual revenues of between £100m and several £billion such as The AA, Ocado, Tesco, Virgin Media, Barclays, Travelodge and John Lewis amongst many other market leading companies. Bond investors lend money to those companies for a fixed rate of interest for a specified number of years, upon which the bond is repaid. Companies use the money raised to expand their businesses and for funding acquisitions or for other corporate purposes.

Why have everyday investors been locked out of the market?

The vast majority of corporate bonds are not available to everyday investors due to the high £100,000 minimum trading sizes and institutional control over the market. Most bonds aren't traded on exchange, but rather trade “over the counter" in the banking market. A very small selection of retail bonds are however available on the London Stock Exchange’s Order book for Retail Bonds (ORB) and can be traded with online stockbrokers. 

How fractional bonds are changing retail access to corporate bonds

Similar to fractional share trading, fractional bonds break down these large size corporate bonds into much smaller pieces (around £100). This means everyday investors can invest in FTSE350 size companies, and earn tax-free income using an IF ISA. One example of a platform offering fractional bonds is WiseAlpha, with a selection of over 150 corporate bonds in £100 minimum sizes. You can read independent reviews of WiseAlpha on Smart Money People.

Where can I learn more about corporate bonds?

Our article sponsor WiseAlpha has created the following free guides and reports:

• Corporate bond educational guide
• Special report on corporate bonds

This article is sponsored by WiseAlpha. The content is for educational purposes only and doesn’t constitute financial advice.

As with all investment products, your capital is at risk. You may not get back what you put in.