This week, Craig Siminski, of CMS Retirement Income Planning, shares an article discussing corporate credit ratings and some differences between investment-grade and speculative-grade bonds:
In response to a pandemic-induced sell-off in March 2020, the Federal Reserve announced that it would purchase corporate bonds, including riskier junk bonds, as part of its effort to stabilize the financial markets. Fed bond buying, along with a pledge to keep interest rates near zero for as long as needed, helped to calm the nerves of investors and to keep money flowing into corporate debt.
In fact, U.S. corporations issued more than $2.2 trillion in new debt in 2020, up from $1.4 trillion in 2019.
Corporations sell bonds to finance operating cash flow and capital investment. Corporate bonds usually offer higher interest rates — and are subject to more risk — than U.S. Treasury securities with comparable maturities. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest, but distressed corporations occasionally default on payments.
Investors who rely on corporate bonds for retirement income, or to help temper the effects of stock market volatility, should consider the degree of …
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 22 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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