High Yield
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
Bonds rated BB+/Ba1 or lower by the major rating agencies; also called 'speculative-grade' or, historically, 'junk.' Characterized by higher coupon, wider spreads, and greater default risk than investment grade.
High Yield in plain English
When a company borrows money by selling bonds, rating agencies grade how likely it is to pay you back — like a credit score for companies. "High Yield" bonds come from shakier companies whose grade falls below a safety line (BB+ or Ba1 and down), so there's a real chance they can't repay. To convince you to take that gamble, they pay you more interest — a fatter yearly "coupon" — which is exactly why they're called high yield. It's the same trade-off as lending $100 to a rock-solid friend for a small thank-you versus lending it to a flaky one who has to promise you $120 back to make it worth your risk.
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