What do corporate bonds primarily represent?

Corporate bonds primarily represent long-term debt obligations issued by private corporations. When a company needs to raise funds, it often does so by issuing bonds to investors. Essentially, when an investor purchases a corporate bond, they are lending money to the corporation for a specified period, typically ranging from several years to decades. In return, the corporation agrees to pay periodic interest to the bondholder and repay the principal amount when the bond matures.

This mechanism allows businesses to secure funding for expansion, operations, or other financial needs while providing investors with a relatively stable income stream through interest payments. Unlike stocks, which represent ownership in the company, corporate bonds do not confer any ownership rights to the bondholders; instead, they entitle them to repayment of their loan and interest. Understanding this concept is essential for investors looking to manage risk and return in their portfolios.