Are corporate bonds any safer than stocks?
Bonds overall are less risky due to their fixed interest payments and the prior rights of bondholders over stockholders if a company declares bankruptcy. However, over the long term, bond investments that pay a fixed rate of interest run the risk of lagging behind inflation, causing an erosion of the purchasing power of those payments. Bond prices and yields at issue are tied to prevailing interest rates in the economy. As interest rates fall, bond prices rise because the value of bonds with relatively higher rates increases. When rates rise, the prices of existing bonds fall. This price relationship holds for all bonds, corporate, Treasury, and municipals. The extent of a bond s rise or fall depends on its maturity; the longer the maturity of a bond, the greater its sensitivity to interest rates. The ups and downs of bond prices in the market are largely irrelevant if you plan to hold the bond to maturity. You get the same steady stream of income throughout the life of the bond. Corpo
