Corporate bonds — how they differ from government bonds
What are corporate bonds, how they work, and how they differ from government bonds. Risk, profit, and what to watch out for.
What are corporate bonds?
Corporate bonds are debt securities issued by companies. By buying a corporate bond, you lend money to a company in exchange for regular interest (coupon) and capital repayment at maturity.
Unlike government bonds, where the state is the debtor, here a private company is the debtor — which means higher risk, but also higher potential profit.
Corporate vs government bonds
| Feature | Government bonds | Corporate bonds |
|---|---|---|
| Issuer | State Treasury | Companies |
| Risk | Very low | Low to high |
| Interest rate | Lower | Higher (risk premium) |
| Availability | oblfrancje.pl, PKO BP | Catalyst market (WSE) |
| Liquidity | Limited (early redemption) | Variable (depends on issue) |
| Tax | 19% flat tax | 19% flat tax |
How do they work?
- Company issues bonds (e.g., 1,000 PLN face value, 8% coupon, 2 years)
- Investor buys bond for 1,000 PLN
- Every half year/year receives interest (coupon)
- After 2 years, company returns 1,000 PLN face value
Where to buy?
Catalyst Market
Organized bond market operated by WSE. You need a brokerage account. You trade bonds like stocks.
Private issues
Some companies offer bonds directly (e.g., through brokerage houses). Often higher coupons, but also higher minimum amounts.
Risks
Credit risk (default)
Company may not repay bonds. Examples from Polish market: GetBack (2018) — investors lost billions of PLN. This is the most important risk.
Liquidity risk
Many bonds on Catalyst have low turnover — you may have trouble selling before maturity.
Interest rate risk
Fixed-coupon bonds lose value when interest rates rise.
How to assess risk?
- Check the issuer's rating (if it exists)
- Analyze financial statements — debt, cash flows, profits
- Avoid companies offering significantly higher coupons than the market (10%+ with 5% rates is a red flag)
- Diversify — don't buy bonds of one issuer for more than 5-10% of portfolio
For whom?
Corporate bonds can be part of a portfolio for an investor who:
- Seeks higher interest rates than deposits and government bonds
- Understands credit risk and can assess it
- Has a diversified portfolio and doesn't put everything on one card
How can Freenance help
In Freenance, you add corporate bonds to your portfolio and see them alongside stocks, ETFs, and government bonds. Track coupons, maturity dates, and real allocation — full risk picture in one view.
Want full control over your finances?
Try Freenance for free