U.S. Corporate Bond Payment Frequencies

If you have ever taken a corporate finance or investments class, then you have no doubt learned about bond valuation. Textbook examples and problems almost universally assume that bonds pay interest semiannually. We want to see if this is justified.

Data

To determine if this semi-annual payment frequency assumption is justified, or not, I ran a screen on FactSet for US Dollar-denominated coupon-bearing bonds of all companies in the S&P 500 as of 27 September 2024. This gave me a dataset of 16,152 bonds, though 687 of them were actually certificates of deposit. After eliminating those, I was left with a sample of 15,465 coupon-bearing bonds. These bonds were issued by the parent companies and their subsidiaries. To analyze this data, I created several pivot tables in Excel and you can download the spreadsheet to see the full dataset and pivot tables (see link at the end of the post).

Bond Issues by FactSet Sector

We start our analysis by looking at the number of outstanding bond issues by sector. By far, the sector that issues the most bonds is the Finance sector with nearly 54% of the bonds in our sample.

Payment Frequency of Outstanding Bonds

The original question that we are looking to answer has to do with payment frequencies. As noted, finance textbooks tend to assume that bonds always pay interest semiannually. This is not quite correct, as shown in the image below.

Instead, we see that while the vast majority (93.5%) of corporate bonds pay interest semiannually there are other payment frequencies. The second most common payment frequency is monthly, but they only comprise slightly over 5% of the bonds in our sample. The other frequencies are relatively rare.

Payment Frequencies by FactSet Sector

Given the results above, I thought it might be interesting to see who is issuing bonds with frequencies other than semiannual. By far, the biggest culprit is the Finance sector. Of the 784 monthly payment bonds, the Finance sector has issued 771 (over 98%) of them. Similarly, the Finance sector dominates the other payment frequencies as shown in the image of the partial pivot table below.

Partly, this is a result of the Finance sector issuing, by far, more bonds than any other sector. However, the pivot table shows that the Finance sector has bonds with 6 different payment frequencies, while most sectors only issue bonds with the semi-annual frequency (see the spreadsheet for full details). The other sectors that issue non-semiannual bonds are Utilities, Health Services, Transportation, and Miscellaneous.

Nonetheless, in every sector semi-annual payment bonds make up the vast majority of all outstanding bonds. I think that this fact justifies the textbook emphasis on semi-annual payments.

You can download the spreadsheet created for this post below.