CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers
Relative to investment-grade corporate bonds, high-yield corporate bonds are most likely to:
High-yield bonds offer higher yields and carry higher credit risk. They are rated below investment grade, so investors require wider spreads as compensation for greater default probability. A rating of BBB- or above describes investment grade, not high yield.
- Ahave a rating of BBB- or higher from S&P
- Boffer higher yields and carry higher credit riskCorrect
- Chave lower default risk because of tighter spreads
Explanation
High-yield bonds are rated below BBB- (S&P) or Baa3 (Moody's). Investors demand higher yields and wider spreads to compensate for greater default risk. Tighter spreads would reflect lower, not higher, risk.
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