Corporate debt can be issued in the form of long or short-term bonds. This is a common way for a firm to raise a large amount of money and it is not just companies that use this practice. The federal government of the United States and many other countries also issue long and short-term bonds that are at generally lower interest rates than corporate. States, towns, and counties also issue debt in the form of bonds although they are not traded as openly or freely as corporate or federal treasury debt. It is possible for corporate debt to influence the cost of treasury debt. The interest rate of federal debt is loosely tied to that of corporate rates and they will trail large swings in interest rates by reacting appropriately to keep people investing.
Bonds that are issued by the federal government and corporations are typically long-term investments, maturing at a date of ten years or more from the time of purchase. Each bond has a par or principle value which it will be worth at the time it matures. It should also be noted that these bonds do not always trade exactly at par value. They are influenced by the overall interest rate market and they can be priced at a discount or at a premium depending on the market as a whole. While treasury bonds do not react as quickly in reaction to interest rate fluctuations, they do react over time.
The cost of treasury debt is affected by the cost of corporate debt and because the treasury debt can have an effect on the overall interest rate market it could easily be argued that the reverse is true as well. Smart investors today will keep a close eye on all financial markets to spot bargains and act on them quickly should the opportunity arise.
Bonds that are issued by the federal government and corporations are typically long-term investments, maturing at a date of ten years or more from the time of purchase. Each bond has a par or principle value which it will be worth at the time it matures. It should also be noted that these bonds do not always trade exactly at par value. They are influenced by the overall interest rate market and they can be priced at a discount or at a premium depending on the market as a whole. While treasury bonds do not react as quickly in reaction to interest rate fluctuations, they do react over time.
The cost of treasury debt is affected by the cost of corporate debt and because the treasury debt can have an effect on the overall interest rate market it could easily be argued that the reverse is true as well. Smart investors today will keep a close eye on all financial markets to spot bargains and act on them quickly should the opportunity arise.
