Cashflow remaining paramount for corporate bondbond investors

When making a risk assessment of a company's debt, it is cashflow rather than earnings that is crucial because it is the source of the coupons paid out to investors

During 2002, a number of high-profile corporate casualties, combined with an uncertain economic background, rising tensions in the Persian Gulf and equity market volatility weighed heavily on corporate bond markets and meant that investors had a somewhat diminished appetite for credit risk. Indeed, issues from AAA rated supranationals and corporate bonds on a higher credit rating (AA and A rated issues) performed relatively well. This was at the expense of BBB rated issues (the lowest rating within the investment grade sector) offering higher yields with commensurately greater credi...