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High yield bonds are bonds rated below ‘Investment Grade’ by Moody, Standard and Poor, or Fitch rating services. Bonds with credit ratings lower than Investment Grade are considered weak and are considered speculative. A table illustrating these bond ratings is shown below.

Bond Credit Quality Ratings of Different Rating Agencies

Investment Grade	Moody's	Standard & Poor's	Fitch Ratings
Highest Quality	Aaa	AAA	AAA
High Quality (Very Strong)	Aa	AA	AA
Upper Medium Grade (Strong)	A	A	A
Medium Grade	Baa	BBB	BBB
Below Investment Grade
Lower Medium Grade (Somewhat Speculative)	Ba	BB	BB
Low Grade (Speculative)	B	B	B
Poor Quality (May Default)	Caa	CCC	CCC
Most Speculative	Ca	CC	CC
No Interest Being Paid or Bankruptcy Petition Filed	C	D	C
In Default	C	D	D

The market for high yield bonds has grown. In addition to being populated by bonds that were once investment grade, the market contains many bonds issued by emerging companies seeking capital.

High yield bonds have the potential for higher returns due to higher coupon rates and the potential for capital appreciation. This occurs when the underlying corporations improve their financial conditions. Capital appreciation can also occur as a result of interest rate changes in the overall markets.

High yield bonds have a corresponding higher risk due to a number of factors including a higher default risk, higher sensitivity to the business cycle, lower liquidity, and higher difficulty in getting information about speculative companies.