Why do companies invest in bonds if they also issue bonds as a source of financing?

Answer 1

Companies with debt can and do invest in bonds for several reasons:

1) Lack of liquidity on debt issued. Unlike your car or home loan which commonly has an option to prepay a loan, company bonds sometimes lack a "call option" that allows them to buy back their own bonds. As a result, they must keep the bonds outstanding.

2) Yield pickup. While you as a person would likely have a "negative spread", where your debt cost more than your investment - a company can get yield pickup by investing in something riskier than their own corporate debt. This is almost never done, but it is within the realm of possibility.

3) Duration management. Bonds mature at different times. Let's say you are a company that has a project that will come on stream in four years. You have financed the project with a 10 year bond. You probably aren't going to pay someone the entire balance of the bond all up front, so the company would want to invest some of the bond proceeds in a ladder of maturities ahead of the payment calendar before the project can start self-financing after year four.

4) Liquidity on the invested bonds. Unlike bonds that the company issued under its own name, company bonds can be bought and sold on the secondary market - making them relatively liquid investments. Bonds are a relatively safe, liquid investment that offers better returns (less liquidity) than cash and money market.

Answer 2

The companies issue bonds to increase their capital, but whenever they have excess capital which they do not need for their business, they invest in bonds. They will sell those bonds when they need.

Answer 3

Bonds could be not extra costly than borrowing rapidly from a financial corporation. that's by way of the fact bond holders is in basic terms not paying deposit assurance. With very long term financing there is no could desire to bypass consult from a financial corporation approximately debt fairness ratios if we are actually not attempting to improve further mortgage capital. yet that's finished whilst investors are actually not easy pressed to get functional costs of interest, not on the applicable of an interest bubble. It locks in a extensive portion of that low interest fee. maximum bonds would be issued with call dates, so as that the borrower can get out early in the event that they have an possibility to refinance for much less, or in the event that they not elect the money. in assessment to elevating money with sale of shares, bonds are superb to finance a variety which will pay nicely, yet that isn't elect financing perpetually. shares offered on no account could desire to be paid decrease back, on no account could desire to pay interest, yet they proceed to be a declare on earnings perpetually, mutually as bonds do require crucial and interest charge, for a finite era.

Answer 4

they issue bonds to increase capital ,same as a loan. They invest in bonds if they have excess capital that they wish to invest.