Every investment season brings with it a popular investment class and this year is no exception. In light of volatile equity markets and a reduction in interest rates investors are looking for something which will give them low risk and a decent yield. The answer has been a flood of money into Corporate Bonds.

 Corporate Bonds are loans to companies who agree to pay a fixed amount of interest over a fixed term. At the end of the term the capital is repaid to the investor. The bonds are viewed as lower risk in comparison to shares in that if the company goes into liquidation the corporate bond holder is higher up the list of creditors.

 These bonds can also be assessed in terms of risk giving them an investment grade. Well capitalised blue chip companies maybe higher grade than smaller highly geared companies. Risk can be further diversified by holding the bonds in a collective investment which holds a number of bonds managed by a professional fund manager.

 The attraction of bonds at the moment relates to the yield which on long term bonds can be up to 6% against the low returns on cash and government bonds. This higher yield or spread is viewed as an anomaly as many experts feel the default risk (companies going bust) has been factored in at to high a rate.

 I would agree that these bonds do represent a good opportunity but they are not risk free as capital values will fluctuate with interest rates. They should never be invested in as an alternative to cash.

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