Another way to measure the value of a bond is by its credit rating.
These ratings indicate the risk you take to get the anticipated return of the bond investment.
As the chart at left shows, the credit ratings influence the interest rate an issuer must pay to attract investors. In comparing bonds of the same maturity, typically the higher the bond's rating, the lower the interest it pays and the lower its yield.
Similarly, lower-rated bonds must typically pay higher rates, providing higher yields, to entice investors who might be concerned about whether the interest will be paid on time or the principal will be repaid. That's why the lowest-rated
bonds are sometimes described as high-yield bonds.
The lowest-rated, high-yield bonds are sometimes called junk bonds, because there is a greater than average risk that the issuer will fail to repay its debt.
The lowest-rated, high-yield bonds are sometimes called junk bonds, because there is a greater than average risk that the issuer will fail to repay its debt.
As the chart at left shows, the credit ratings influence the interest rate an issuer must pay to attract investors. In comparing bonds of the same maturity, typically the higher the bond's rating, the lower the interest it pays and the lower its yield. 