The line between investment grade and high yield bonds sits at BBB‑ on the S&P and Fitch scales and Baa3 on Moody’s. Bonds at or above it are investment grade; bonds below it, rated BB+/Ba1 or lower, are high yield, also called speculative grade or junk. That line affects who can own a bond, how much an issuer pays to borrow, and how the bond behaves when rates rise or the economy weakens. This guide compares the two with daily market data and sourced default statistics. For the definition in depth, see the investment grade guide.
Quick answer: investment grade bonds pay less but default far less often. High yield bonds pay more to compensate for higher default risk and tend to fall further in recessions, while investment grade bonds, which usually have longer durations, are more exposed to rising interest rates.
Investment Grade vs. High Yield Today
The ICE BofA indexes below update each business day from FRED. As of October 1, 2026, the high yield index yields 223 bps more than the investment grade index, and its option-adjusted spread is 238 bps wider.
| Measure | Investment grade (ICE BofA US Corporate) | High yield (ICE BofA US High Yield) |
|---|---|---|
| Effective yield | 5.99% | 8.22% |
| Option-adjusted spread | 86 bps | 324 bps |
| Spread one year earlier | 76 bps | 281 bps |
| Spread range since October 3, 2023 | 73 bps to 133 bps | 259 bps to 461 bps |
Source: ICE BofA US Corporate Index and US High Yield Index effective yields and option-adjusted spreads via FRED (series BAMLC0A0CM and BAMLH0A0HYM2 for spreads). The range covers the daily history FRED publishes for these series.
Spread is the extra yield over comparable Treasuries that investors demand for credit risk. When the high yield spread is narrow relative to its history, investors are being paid less than usual for taking on default risk. The credit spreads explainer covers how spreads are measured.
Key Differences
| Feature | Investment grade | High yield |
|---|---|---|
| Ratings | AAA to BBB‑ (Aaa to Baa3) | BB+ (Ba1) and below |
| Typical issuers | Large, established companies, many utilities and banks, governments | Growing or highly leveraged companies, many private equity owned businesses, fallen angels |
| Default risk | Low; S&P average 1-year default rate 0.08% (1981 to 2024) | Higher; S&P average 1-year default rate 3.54% (1981 to 2024) |
| Main price driver | Interest rates and duration | Credit conditions and default expectations |
| Typical duration | Longer | Shorter, partly because coupons are higher and maturities are shorter |
| Covenants | Usually few | More common, such as limits on debt and payouts |
| Common buyers | Insurers, pension funds, bond funds and ETFs, banks | High yield funds, CLOs, hedge funds, opportunistic investors |
Default rates: S&P Global Ratings, 2024 Annual Global Corporate Default And Rating Transition Study, March 27, 2025, table 24.
Default Risk by Rating
Default rates rise steeply below the investment grade line. In S&P’s 1981 to 2024 global corporate study, the 10-year cumulative default rate was 2.86% for BBB issuers and 10.44% for BB issuers, and 1.69% for investment grade as a whole versus 19.15% for speculative grade. In 2024, 97 of the 130 rated defaulters were rated CCC/C at the start of the year. The investment grade vs. non-investment grade comparison has the full table by rating.
Risks and Rewards
Investment grade
- Interest rate risk. Longer durations mean larger price declines when rates rise. In 2022, as rates climbed, the Bloomberg US Corporate Index lost about 15.8%.
- Inflation risk. Fixed coupons lose purchasing power when inflation runs high.
- Downgrade risk. A downgrade, especially below BBB‑, can push prices down and force some holders to sell.
- Rewards. Lower default risk, broad liquidity, and a tendency to hold up better than stocks and high yield in many credit downturns, when Treasury yields fall.
High yield
- Default risk. The central risk; defaults rise sharply in recessions.
- Volatility and liquidity. Prices move more with the economy and stock market, and trading can thin out in a sell-off.
- Interest rate risk. Present but usually smaller, because durations are shorter.
- Rewards. Higher income, and potential price gains if an issuer’s credit improves or it is upgraded to investment grade.
Recent Returns
Over the five and ten years through 2025, high yield returned more per year than investment grade corporates. The period included the 2022 rate shock, which hurt longer-duration investment grade bonds most, and no prolonged default wave. Results differ in recessions with heavy defaults, when high yield has historically fallen much further.
| Index (average annual total return, periods ended December 31, 2025) | 1 year | 5 years | 10 years |
|---|---|---|---|
| Bloomberg US Corporate Index (investment grade) | 7.77% | −0.09% | 3.27% |
| Bloomberg US Corporate High Yield Index | 8.62% | 4.51% | 6.53% |
Sources: index returns as reported in summary prospectuses filed with the SEC in 2026 (Morgan Stanley Institutional Fund Trust and Hartford Mutual Funds for the Bloomberg US Corporate Index; Guggenheim for the Bloomberg US Corporate High Yield Index). Index returns reflect no fees or expenses. Past performance does not predict future results.
How Investors Use Each
Investment grade bonds commonly serve as the core of a fixed income allocation and a diversifier against stocks. High yield behaves partly like a bond and partly like a stock, adding income in exchange for more credit risk. How much of each to hold depends on goals, time horizon, tax situation, and tolerance for losses in a downturn; there is no single right mix, and a licensed advisor can help apply it to your situation.
- Diversification. Funds and ETFs spread default risk across hundreds of issuers, which matters most in high yield.
- Laddering. Buying bonds that mature in different years spreads reinvestment and interest rate risk.
- Watching spreads. Narrow high yield spreads mean less compensation for credit risk; wide spreads can offer more, along with more risk.
What This Means for Net Lease Real Estate
The same rating line applies to net lease tenants. Credit spreads can inform how buyers and lenders price properties leased to rated tenants, but cap rates also reflect Treasury rates, financing costs, location, lease term, rent increases, and buyer demand, so they do not move in lockstep with bond spreads. The tenant ratings database labels each tenant investment grade or not, and the bond-to-NNN spread table compares tenant cap rates with bond index yields.
Own a Net Lease Property?
If your tenant’s rating has changed, its value and financing terms may have changed too. Talk with us about sale or refinance options.
Frequently Asked Questions
What is the main difference between investment grade and high yield bonds?
The credit rating. Investment grade bonds are rated BBB‑ or higher by S&P and Fitch, or Baa3 or higher by Moody’s; high yield bonds are rated below that. In S&P’s 1981 to 2024 study, the average one-year default rate was 0.08% for investment grade issuers and 3.54% for speculative grade issuers.
How much more do high yield bonds pay today?
As of October 1, 2026, the ICE BofA US High Yield Index yields 223 bps more than the ICE BofA US Corporate Index, and its option-adjusted spread is 238 bps wider. The figures update each business day.
Have high yield bonds outperformed investment grade?
Over the five and ten years through 2025, yes: the Bloomberg US Corporate High Yield Index returned 4.51% and 6.53% per year, versus −0.09% and 3.27% for the Bloomberg US Corporate Index. That period included the 2022 rate shock, which hurt longer investment grade bonds most. In recessions with heavy defaults, high yield has historically fallen much further.
Which is more sensitive to interest rates?
Investment grade bonds usually are, because their durations are longer. High yield prices depend more on the economy and default expectations.
How do recessions affect each?
Recessions raise defaults and widen spreads, which hits high yield hardest. Investment grade spreads also widen, but falling Treasury yields can offset part or all of that. Outcomes vary by recession, so compare periods with identical dates and index definitions.
Related Guides
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced fluctuate continuously and are sourced from public market data as of the date noted. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
