Before diving deeper into the factors that differentiate corporate and treasury bonds, it is important to first understand what each of them are and why they are issued in the first place. 

What Is A Corporate Bond?

A corporate bond is a type of debt security issued by a private corporation or business entity to raise capital.

This may be done for a variety of reasons, such as expansion of business operations, refinancing of prior debt, increasing short-term cash reserves, etc. 

When an investor buys a corporate bond, they are essentially lending money to the issuing corporation in exchange for periodic interest payments (coupon payments) and the return of the bond's face value (principal) at maturity.

Corporate bonds are a common form of corporate financing and serve as a way for companies to raise funds. 

When a corporate bond is issued, a prospectus document is also required, which shows the latest financial performance of the issuing company, as well as the purpose of the bonds and other information, such as corporate structure, governance, etc. 

What Is A Treasury Bond?

A treasury bond is a debt security issued by a government entity, mainly the treasury, which operates similarly to a corporate bond and aims to raise capital for the government.

This may be to fund an infrastructure project, or any of the various government social projects. 

U.S treasury bonds are especially popular among investors, as they are considered as some of the safest investments available on the market. 

Core Differences Between Corporate And Treasury Bonds 

Corporate bonds and Treasury bonds are both debt securities, but they have some key differences based on their issuers, risk levels, and other characteristics.

 Here's a breakdown of the main differences between corporate bonds and Treasury bonds:

• Issuer: Corporate bonds are issued by private companies, while treasury bonds are issued by state treasuries and are sponsored by the government
• Risk: Due to their issuers, corporate bonds are generally riskier than treasury securities, as the risk of default is much lower for government bonds
• Interest Rates: Due to the difference in risk, corporate bonds have higher interest rates than treasury bonds to make them more attractive to investors
• Yield: The yield on a bond is influenced by its price and interest rate. Corporate bonds tend to offer higher yields than Treasury bonds, but this is due to the increased risk associated with corporate bonds
• Maturity: Both corporate and Treasury bonds can have various maturities, ranging from short-term to long-term. Some corporations issue bonds in perpetuity
• Credit Rating: Corporate bonds are assigned credit ratings by rating agencies (e.g., Moody's, Standard & Poor's) based on the issuer's creditworthiness. Treasury bonds do not receive credit ratings because they are considered risk-free
• Liquidity: Treasury securities typically enjoy much higher liquidity on the market than corporate bonds, as the demand for treasuries is higher 

• Corporate and treasury bonds are popular methods for companies and governments to raise capital for various purposes
• Corporate and treasury bonds are different in many ways, such as risk profile, liquidity, credit rating, interest rates, etc 
• Investors tend to put more capital into corporate and treasury bonds when interest rates start to increase, making them more attractive as investments 
• Treasury bonds are considered to be virtually risk-free, while corporate bonds may carry a varying degree of risk