the Wealthy Canadian

Corporate bonds bear more risk than government bonds and therefore can have higher redeeming values and options. Corporate bonds, unlike government bonds, are traded on the open market and can be seen as listed entities at multiple international exchanges and also in over-the-counter trading atmospheres.

With corporate bonds, the coupon or interest is usually taxable. Therefore the bondholder would be wise to investigate whether a particular bond coupon should be listed as income on the tax return. Since corporations are much smaller than countries, the risk of collapse before your bond matures is far greater; although it could be argued that companies like Microsoft bear a greater deal of stability then most countries.

Some corporate bonds have a call option, which allows the investor to redeem their principal before the bond matures. However there may be fees and penalties involved when the investor attempts to do this. Needless to say it would be prudent to understand the conditions of your call option before you redeem.

Some corporate bonds are known as convertible. This means you have the option to convert your corporate bonds to equity shares within that company. This way you can keep abreast of market performance by shifting your portfolio to best suit the market environment and your willingness for risk.

Before investing in corporate bonds, you may want to check the option adjusted spread. This compares the corporate bond against the government bond market to measure the discrepancy of risk between the two. Checking the option spread will allow you to make an informed decision on the risk involved.

The world of bonds stretches much further than this, so look forward to more articles on the subject.
Bond and debentures
The bond market
Bond classes