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In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events but offer higher yields than investment-grade bonds in order to compensate for the increased risk.
A bond is considered investment grade or IG if its credit rating is BBB− or higher by Fitch Ratings or S&P, or Baa3 or higher by Moody's, the so-called "Big Three" credit rating agencies. Generally they are bonds that are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.
Corporate bonds are divided into two main categories High Grade (also called Investment Grade) and High Yield (also called Non-Investment Grade, Speculative Grade, or Junk Bonds) according to their credit rating. [5] Bonds rated AAA, AA, A, and BBB are High Grade, while bonds rated BB and below are High Yield.
Yields for these non-investment-grade bonds are higher than government bonds, meaning investors can earn more in income relative to the price they paid for the bonds.
Investment-grade bonds have a low risk of default, which is the possibility of the issuer missing an interest payment. The entities issuing these bonds are generally trustworthy when it comes to ...
Non-Investment Grade (also known as speculative-grade) BB : An obligor rated 'BB' is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial ...
Investment-grade bonds have stronger credit ratings and are safer than non-investment-grade bonds. Whichever type you choose, investing in a bond fund is less risky than investing in individual ...
Because regulated market participants must follow minimum investment grade provisions, ratings changes across the investment/non-investment grade boundary may lead to strong market price fluctuations and potentially cause systemic reactions. [161]