High-yield bond (redirected from Low-Grade Bonds)
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with a low rating
. Bonds rated less than Baa3 by Moody's
or BBB- by S&P or Fitch
are considered high-yield bonds. They have higher yields
because they have a higher risk
on the part of the issuer
. High-yield bonds are considered sufficiently high-risk that the law does not allow banks
to invest in them. They are also called low-grade bonds, and, informally, junk bonds.
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Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
High-yield bonds are bonds whose ratings from independent rating services are below investment grade.
As a result, to attract investors, issuers of high-yield bonds must pay a higher rate of interest than the rates that issuers of higher-rated bonds with the same maturity are paying. The higher rate translates to more income, which is the higher yield.
High-yield bonds may also be described, somewhat more graphically, as junk bonds.