High-Yield Bond
Bonds rated below investment grade (BB+/Ba1 or lower) — offering higher yields to compensate for elevated default risk.
High-yield bonds (also called junk bonds or speculative-grade bonds) are issued by companies with weaker credit profiles, rated below BBB-/Baa3. Because the default probability is higher, investors demand a significantly higher yield — typically 300–1,000+ basis points above equivalent-maturity Treasuries.
HY bonds behave more like equities than investment-grade bonds: their prices are more sensitive to the issuer's business performance than to interest rate moves. In bull markets, HY spreads compress; in recessions or credit crises, they blow out dramatically.
The HY market is a leading indicator — spreads tend to widen before equity markets roll over, because credit holders feel distress before equity holders in the capital structure.
Related Terms
Bond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
BeginnerCorporate Bond
Debt issued by a company to raise capital, paying a coupon above Treasuries to compensate investors for credit risk.
BeginnerCredit Default Swap (CDS)
A derivative that pays out if a borrower defaults — effectively insurance on a bond, with its premium acting as a live market price of credit risk.
AdvancedCredit Rating
A graded assessment by agencies like Moody's, S&P, and Fitch of an issuer's ability to repay debt — the standardized scale for default risk.
BeginnerCredit Spread
The yield difference between a corporate (or other non-government) bond and a Treasury of the same maturity — the market's price for credit risk.
IntermediateDefault Risk
The probability that a bond issuer will fail to make scheduled interest or principal payments — the core credit risk in fixed income.
IntermediateInvestment Grade
Bonds rated BBB-/Baa3 or above by major rating agencies — considered low enough default risk for institutional investors and pension funds.
Intermediate