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Back to Bond Guides
BasicsIntermediate

Corporate Bonds — Investment Grade vs High Yield

Overview

Corporate bonds offer higher yields than Treasuries in exchange for credit risk. Understand the rating system, spread analysis, and how to evaluate corporate bond quality. Credit spreads are a key signal in fundamental analysis and can reveal hidden opportunities during market stress. Compare corporate bond ETFs against broader options in our ETFs vs index funds guide, or learn how they fit into income-focused strategies.

Key Takeaways

  • Investment grade: BBB- and above (S&P) — lower risk, lower yield.
  • High yield (junk): BB+ and below — higher risk, higher yield, more equity-like behaviour.
  • Credit spread: the yield premium over Treasuries — widens during fear, narrows during optimism.
  • Fallen angels: bonds downgraded from IG to HY often become opportunities.

Practical Tips

  • Use ETFs like LQD (investment grade) or HYG/JNK (high yield) for diversification.
  • Monitor the ICE BofA High Yield Spread on FRED — it's a key risk sentiment gauge.
  • In a recession, high-yield spreads can blow out 400-600bps — that's when the best opportunities arise.

More Basics Guides

What Are Bonds & How Do They Work?

Bonds are fixed-income securities where you lend money to a government or corporation in exchange for regular interest payments and return of principal at maturity. Understanding bond mechanics is the first step toward building a diversified portfolio that balances risk and income across <a href="/market/bonds" class="text-primary hover:underline">the bond market</a>. Explore how bonds compare to <a href="/market/stocks" class="text-primary hover:underline">stocks</a> and other asset classes, or dive into key terms in our <a href="/glossary" class="text-primary hover:underline">glossary</a>.

US Treasury Securities — T-Bills, T-Notes & T-Bonds

US Treasuries are the world's safest fixed-income instruments, backed by the full faith of the US government. Learn the differences between bills, notes, and bonds. Treasury yields drive pricing across the entire fixed-income universe, making them essential reading alongside our <a href="/market/yield-curve" class="text-primary hover:underline">yield curve analysis</a>. Stay up to date with <a href="/news/central-banks" class="text-primary hover:underline">central bank news</a> and track upcoming auctions on the <a href="/tools/economic-calendar" class="text-primary hover:underline">economic calendar</a>.

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Fundamental AnalysisMutual FundsDividendsMacro