High-Yield Bond

Bond credit ratings rank how likely a borrower is to repay its debt. When rating agencies such as Moody's or S&P grade a bond below a certain threshold — "BB+" or lower on the S&P scale — it falls into the high-yield category. Because the issuer is considered riskier, it must offer a higher coupon (the regular interest payment) to attract buyers. That extra interest above a safe benchmark is called the credit spread.

The nickname "junk bond" comes from the same idea: these are bonds the market treats as speculative. Suppose a government bond yields 4% (hypothetical example). A high-yield corporate bond from a struggling retailer might need to yield 9% to attract the same pool of money — that 5-percentage-point gap is the spread, and it reflects perceived default risk.

In market data, traders typically watch high-yield spreads as a broader economic signal. When spreads widen sharply, economists read this as the market pricing in a higher chance of corporate defaults — often a sign of tightening financial conditions. When spreads compress, it generally reflects confidence in corporate health. You can track related bond market data and see how yields shift alongside economic news on the economic calendar.

A common confusion: "high yield" describes credit quality, not interest-rate sensitivity. A high-yield bond can still lose market value if rates rise, just like any bond. The two risks — credit risk and duration risk — are separate, and both show up in a bond's price.