Corporate bonds are IOUs issued by companies. When a corporation needs money, instead of borrowing from a bank or selling equity, it can issue bonds to investors. The company promises to pay periodic interest (coupon) and return the principal at maturity.
Example: Apple issues a $1,000 bond with a 4% coupon, maturing in 10 years. You buy the bond, receive $40/year in interest for 10 years, and get your $1,000 back at maturity. Apple gets capital without diluting ownership — and the interest is tax-deductible.
The global corporate bond market exceeds $15 trillion. Investment-grade bonds (rated BBB or above) offer lower yields but greater safety. High-yield (junk) bonds offer 6-10%+ returns but carry significant default risk. During COVID, the Fed's unprecedented decision to buy corporate bonds prevented a market collapse.