The microstructure of corroded HDDR-NdFeB magnetic powders in bonded magnet has been investigated by transmission electron microscopy. Following an exposure time of 300h at 398K in air, the HDDR-NdFeB magnetic powders are found covered with an altered layer about 300nm thick on the surface. The layer is composed of α-Fe grains 5-10nm in diameter and h-Nd 2 O 3 grains smaller than 5nm. Under the altered layer, corrosion has proceeded along the Nd 2 (Fe,Co) 1 4 B grain boundaries to leave a wetting layer composed of a dense mixture of α-Fe and h-Nd 2 O 3 phase. The appearance of α-Fe grains in both of the altered layer wetting layer leads to the high magnetic flux loss of the corroded HDDR-NdFeB bonded magnet.