Corporate Bonds
A loan to a company, with terms set out in an indenture. The yield compensates for the time and for the possibility that the company does not pay.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- A corporate bond's yield is a Treasury yield plus a credit spread.
- The indenture is the contract, and it is filed as an exhibit.
- Seniority and security determine what a holder recovers in a default.
- Most corporate bonds trade over the counter, in principal transactions.
- The market is far less liquid than the equity market of the same issuer.
MAD Academy Training Video · 0:45
Lending to a Company, With Rules
A corporate bond is a contract with a legal claim ahead of shareholders, and the covenants inside it are where the protection lives.
This lesson is part of a Stock Alerts + Tools plan.
What the yield is made of
corporate yield = Treasury yield of the same maturity + credit spread
- the Treasury component compensates for time and expected policy rates
- the spread compensates for default risk, liquidity and the terms of the specific bond
Separating the two is what makes corporate bond analysis tractable. A bond can lose value because rates rose, because the issuer's credit deteriorated, or both, and the two causes have entirely different implications.
This is also why a corporate bond is sometimes described as a Treasury plus a short position in the issuer's credit. The decomposition is not merely descriptive: the two components are hedged, traded and analysed separately.
The capital structure
| Rank | Instrument | Position in a default |
|---|---|---|
| 1 | Secured debt | Backed by specific assets, and paid from them first |
| 2 | Senior unsecured | The bulk of most investment-grade issuance |
| 3 | Subordinated | Paid after senior claims are satisfied |
| 4 | Preferred equity | Ranks ahead of common and behind all debt |
| 5 | Common equity | Last, and typically receives nothing |
The ranking is the reason two bonds from the same issuer can trade at very different yields. They are claims on the same company with different positions in the queue, and the queue is what determines recovery.
- Secured debtBacked by specific assets, and paid from them
- Senior unsecuredThe bulk of investment-grade issuance
- SubordinatedAfter senior claims are satisfied
- Preferred equityAhead of common, behind all debt
- Common equityLast, and typically receives nothing
The indenture
The indenture is the contract governing the bond. It is filed with the SEC as an exhibit and contains the terms that a summary description omits.
- Call provisions, which let the issuer repay early on stated terms.
- Change-of-control provisions, which can require repayment if the company is acquired.
- Covenants restricting further debt, asset sales or dividends.
- The events that constitute a default and what happens when one occurs.
- Cross-default terms linking this bond to others.
Covenant strength varies enormously across issuance, and periods of strong demand for credit produce weaker terms. The document rather than the rating is where those terms are found.
How they trade
Most corporate bonds trade over the counter rather than on an exchange, in principal transactions where a dealer sells from inventory. Compensation is a markup embedded in the price rather than a commission.
| The issuer's equity | The issuer's bonds | |
|---|---|---|
| Where it trades | An exchange | Over the counter, through dealers |
| Number of instruments | One or two share classes | Often a dozen or more separate bonds |
| Typical daily activity | Continuous | Many bonds do not trade on a given day |
| Price transparency | Continuous quotes | Trade reporting after the fact, plus dealer quotes |
The second row is why bond liquidity is so different. An issuer with one equity line may have twenty bond issues, and the activity is divided among them, which is one of the structural reasons the market is thinner.
Where to find the terms and the trades
Corporate bond information is more dispersed than equity information, and knowing where each piece lives makes the market considerably more legible.
| What | Where |
|---|---|
| The indenture and covenants | Filed with the SEC as an exhibit to a registration statement or an 8-K |
| Actual trade prices | Reported through the trade reporting facility for corporate bonds, publicly available |
| Outstanding issues by an issuer | The debt note in the annual report, and the filings |
| Ratings and rating actions | The agencies' own sites, and press releases |
| Current quotes | A broker's platform, and they differ between brokers |
The second row is the one most people do not know exists. Corporate bond trades are reported publicly, so it is possible to see the prices at which a bond has actually traded rather than only the price a dealer is quoting.
Comparing a quoted price against recent reported trades is the single most useful check available in this market, because the compensation is embedded in the price rather than itemised.