Rosie Carr, Investors Chronicle deputy editor, replies:
"Corporate bonds are tricky to get right. On the one hand, they offer tantalising yields to investors whose goal is to generate income at a time when interest rates are near to zero, and on the other, the risk of issuer default has risen sharply across the board. Most investors take the easy option which is to invest in a corporate bond fund. That way, someone else makes all the calls about the issuer's prospects, and you reduce risk by gaining exposure to lots, rather than a handful, of bonds.
Bonds are issued with a face value but they normally trade at either a discount or premium to this value. Bond prices move when interest rates change, or in anticipation of that, and in response to changes in the company's credit rating. Investors need to know what the current yield is (this will rise when the bond's price falls), what the gross redemption yield is (this factors in whether a capital gain or loss will be made if the bond is held to maturity), the credit rating and some other bits of information.
Typically, bonds are traded in £1,000 lots, although recently some issues have had a face value of £50,000 putting them out of reach of many private investors, and interest (the coupon) is paid annually. They can be held in an Isa as long as they have five years to redemption.
You are right that buying corporate bonds is like buying gilts. You pay the underlying (or clean) price plus the accumulated interest. You trade corporate bonds through a stockbroker. The broker will charge commission on the trade and this will be calculated on the clean price. Fred Robinson, a partner at Killik & Co, points out that if you buy a bond full of interest, you will be using capital to pay for it, but when the interest is eventually paid and that money is returned to you, it will be taxed as income. Sometimes it might be worth waiting to pay just the clean price.
Mr Robinson also warns that the corporate bond market is not as liquid as the gilts market and you will encounter wider spreads. He advises placing limits on your order as a precaution. For example, while in the gilts market spreads normally extend to a few pips either side of the mid price, in the corporate bond market, you could be looking at a four-point spread.
Getting hold of current prices is not easy, but your stockbroker will be able to help with specific queries. You can find an Excel table of popular bond prices at www.investorschronicle.co.uk/ResearchTools (registration required) and Barclays Stockbrokers carries information on individual sterling corporate bonds at www.fixedincomeinvestor.co.uk. "
Read our free investment guide to investing in bonds
See examples of our Bond of the Week feature
"Can you avoid half the bid offer spread by holding the bond to maturity." - Graham Cox
Mark Glowrey, director of Stockcube Research and a former bond trader, replies:
"Yes, and at a time when spreads on corporate bonds have widened out somewhat (as a consequence of investment banks scaling back their trading activity) that would seem to be a wise strategy. People often forget that with bonds you get the issue value back at the end of the term - provided, of course, that the issuer doesn't become insolvent in the meantime. With equities, by contrast, you are forced to accept the market's terms when you come to sell."
"Your article today does not mention Corporate Bond ETFs. Are there any? And which have the lowest TERs?" - Nigel Fordham
Jonathan Eley, online editor of Investors Chronicle, replies:
"Although corporate bonds are not traded on exchanges as equities are, there are corporate bond indices and a couple of ETFs that are based on them. For more information on ETFs, trackers and actively-managed corporate bond funds, see ."
