Financial Writer
Publication date Wednesday 24 June 2026 15:35
Key Takeaway
Corporate bonds pay investors a fixed coupon and return their principal at maturity, offering predictable income at a time when the UK 10-year gilt yield sits at approximately 4.79% and quality corporate bonds typically yield 5-7% or more. With us, you can access the corporate bond market through bond ETFs via share dealing or ISA, or trade bond price movements using spread bets or CFDs.
What is a corporate bond?
A corporate bond is a debt instrument issued by a company to raise capital from investors. When you buy a corporate bond, you are effectively lending money to the issuing company in exchange for:
A fixed coupon — a regular interest payment, typically paid semi-annually or annually, expressed as a percentage of the bond's face value
Repayment of the principal — the original face value of the bond — at a set maturity date
For example, a £1,000 corporate bond with a 5% annual coupon would pay £50 per year in interest and return the £1,000 principal at maturity. The issuer commits to these payments regardless of whether its share price rises or falls — which is why bonds are considered lower risk than equities for most companies.
Corporate bonds are typically issued in large denominations — often £1,000 to £50,000 minimum — which can make direct bond purchases less accessible to retail investors than equities. Bond ETFs provide a more accessible route for most investors.
How do corporate bond yields work?
The yield on a corporate bond is the annual income expressed as a percentage of the current market price. Because bond prices move in the secondary market after issuance, the yield changes even though the coupon stays fixed.
This creates the most important relationship in fixed income: bond prices and yields move in opposite directions. When demand for a bond rises and its price increases, the yield falls. When prices fall, yields rise.
The yield to maturity (YTM) is the most comprehensive measure — it reflects the total annual return an investor would receive if they bought the bond at the current price, received all coupon payments, and held it to maturity.
Investment grade vs high yield bonds
Corporate bonds are rated by credit rating agencies — primarily Moody's, S&P, and Fitch — based on the issuer's ability to service its debt. These ratings divide the bond market into two broad categories:
Investment grade bonds are issued by companies rated BBB- or above (S&P/Fitch) or Baa3 or above (Moody's). These issuers are considered financially stable and unlikely to default. Investment grade bonds pay lower yields in exchange for their relative safety. Examples of UK investment grade bond issuers include HSBC, Vodafone, and National Grid.
High yield bonds — also called junk bonds — are issued by companies rated below investment grade. These companies carry a higher risk of default, and investors demand higher yields to compensate. High yield bonds can generate significantly higher income than investment grade, but with commensurately greater risk of loss if the issuer runs into financial difficulty.
For most retail investors, investment grade bonds or broadly diversified bond ETFs are the most appropriate starting point.
What affects corporate bond prices?
Several factors drive corporate bond prices up and down after issuance:
Interest rates are the single most important driver. When central bank rates rise, newly issued bonds offer higher coupons, making existing lower-coupon bonds less attractive — their prices fall and yields rise to compensate. Long-dated bonds are most sensitive to rate changes: a 1% rate rise can cause a 10-20% price drop in long-maturity bonds.
Credit quality of the issuer affects pricing. If a company's financial position deteriorates, investors demand higher yields to hold its bonds. Upgrades or downgrades from rating agencies can cause sharp price movements.
Credit spreads are the extra yield a corporate bond pays over an equivalent government bond. Spreads widen in times of economic stress and tighten when confidence is high. As of June 2026, investment grade credit spreads remain relatively tight by historical standards.
Inflation erodes the real value of fixed coupon payments. Higher inflation expectations tend to push bond yields up and prices down.
Liquidity affects pricing particularly for smaller or less well-known issuers. Less liquid bonds can be harder to sell at a fair price, especially in stressed markets.
Corporate bonds vs government bonds (gilts)
Government bonds (gilts in the UK) are debt issued by the UK government and are considered the lowest-risk fixed income instrument available to UK investors. Corporate bonds pay a higher yield than gilts to compensate investors for taking on the additional credit risk of a private company borrower.
As of June 2026, the UK 10-year gilt yields approximately 4.79% — meaning quality corporate bonds typically yield 5-7% or more depending on the issuer and maturity.
How to buy corporate bonds in the UK
There are three main routes to getting corporate bond exposure in the UK:
1. Direct bond purchase
2. Bond ETFs
3. Spread bets and CFDs
Direct bond purchase
Direct bond purchase involves buying individual bonds through a broker. Minimum investment sizes vary but are often £1,000 or more per bond. This approach gives you precise control over issuer, maturity, and yield, and allows you to lock in a specific income stream if held to maturity. It is more suited to larger portfolios with the time and expertise to analyse individual issuers.
Bond ETFs
Bond ETFs provide diversified exposure to a basket of corporate bonds through a single, exchange-traded instrument. Examples of widely held bond ETFs available to UK investors include the iShares Core £ Corporate Bond UCITS ETF (SLXX) and the Vanguard UK Investment Grade Bond Index ETF (VIGS). Bond ETFs can be held within an ISA or SIPP, making them a tax-efficient route to fixed income exposure. Through our share dealing platform you can buy bond ETFs with £0 commission on US-listed ETFs and from £3 on UK-listed instruments.
Spread bets and CFDs
Spread bets and CFDs allow you to trade on the price movements of government bonds and bond markets without owning the underlying instruments. With us, you can spread bet or trade CFDs on UK gilts, US Treasuries, and German Bunds. This is a leveraged approach suited to shorter-term trading rather than income investing — you do not receive coupon payments on spread bet or CFD positions
Corporate bond tax treatment
The tax treatment of corporate bonds held directly is more favourable than for shares in one important respect: qualifying corporate bonds (QCBs) are exempt from capital gains tax. A bond is a qualifying corporate bond if it is a sterling-denominated, non-convertible debt instrument. Most straightforward corporate bonds issued by UK companies meet this definition.
However, coupon income from corporate bonds is taxable as income. Interest received is added to your other income and taxed at your marginal income tax rate, above the Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers, £0 for additional rate taxpayers).
Bond ETFs do not carry the same QCB tax treatment as individual bonds — regular CGT rules apply to gains, and income distributions are taxable. Holding bond ETFs within an ISA eliminates both CGT and income tax on any gains and distributions.
Tax treatment depends on individual circumstances and can change. This is not tax advice.
Risks to understand
Credit risk is the risk that the issuer defaults and fails to make coupon payments or repay principal. Investment grade issuers are less likely to default, but not immune.
Interest rate risk is the risk that rising rates reduce the market value of your bond. If you hold a bond to maturity, you receive the face value regardless of what the price does in between — but if you need to sell before maturity, you are exposed to price movements.
Inflation risk means fixed coupon payments lose real purchasing power if inflation rises. A 5% coupon with 4% inflation provides a real return of only approximately 1%.
Liquidity risk can make it difficult to sell individual bonds quickly at a fair price. Bond ETFs are more liquid than individual bonds.
Reinvestment risk arises when a bond matures — if rates have fallen, you may not be able to reinvest the proceeds at the same yield.
Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invest.
How to trade or invest in corporate bonds with us
With us, you can access the corporate bond market in two ways. For investing, our share dealing account and stocks and shares ISA give you access to bond ETFs with competitive dealing charges — from £3 on UK instruments and £0 on US-listed ETFs online. Holding bond ETFs within an ISA shelters coupon income and any capital gains from tax, up to the annual £20,000 allowance.
For trading bond market price movements, spread bets and CFDs on UK gilts, US Treasuries and German Bunds are available with leverage. Spread betting profits are free from capital gains tax and stamp duty for most UK retail traders.
For guidance on how bonds fit into a broader portfolio, see our guides on alternative investments and how to invest in shares. For tax on investing, see our capital gains tax guide.
