Corporate Bond Yields By Rating Review

Corporate Bond Yields

Corporate bond yields will depend in some part on the ratings of the bond. Investors who choose this type of bond will compare a risk to reward ratio, and bonds which have a lower credit rating will usually offer higher yields to entice investors to take the risks involved. Investing in corporate bonds involves more risk than many municipal bond investments, and the credit rating that a company is given will help determine the exact risks involved with a specific bond. This rating can range from AAA down to D for bonds which are already in the default process. Any bond rated from AAA to BBB is considered investment grade, while bonds with a rating lower than BBB are considered junk bonds. The bonds which have a junk credit rating will offer yields that may be considerably higher than the bonds which are considered investment grade.

The corporate bond yields for companies that have an AAA rating from one of the major credit rating agencies is usually between 2% and 4%, depending on the term of the bond. A rating of AAA is the best possible credit rating a company can receive, and these bonds are considered to have the lowest possible risk of default for investors. High yield corporate bonds are rarely rated as AAA, and most of the high yield options are not considered investment grade at all. AA rated bonds typically have a yield that is a few percentage points higher than bonds rated as AAA, because the AA bonds carry a little more risk than those rated AAA. AA bonds right now carry a possible yield that is normally between 2.65% and 4.35%.

A rated corporate bond yields right now are between 3.25% and 5.15% for most bonds, and those rated as BBB will usually be anywhere from 0.250% to 1% higher in yield. Below a BBB rating the bonds chosen are no longer considered investment grade, and are referred to as junk bonds. While the corporate bond rates for junk bonds are higher there is also a lot more risk involved and investors face the possibility of default. Junk bonds include the ratings BB, B, CCC, CC, and C, and with each decline in credit rating the possible yield for the investment will increase.

The highest corporate bond yields will come from companies with very low credit ratings. A D rated bond can offer extremely high yields but many investors will not invest because this rating means the bond has already been in default. The level of risk involved will determine the rate and yield of the bond. This is one reason why the government bond yields are usually smaller than the yields from corporate bonds. The rating of the bond and the possible yield are just two of the factors that should be thoroughly researched and evaluated before any bonds are chosen as investments. Some company bonds may offer the same rating but have different yields, and some may have different ratings but similar yields.