Definition
A loan you make to a company in exchange for scheduled interest payments and your money back at maturity. Rating agencies grade issuers: investment-grade bonds pay less because default is unlikely; high-yield (junk) bonds pay more because it is not.
Why it matters
Corporate bonds yield more than Treasuries because you are taking real default risk. The extra yield is compensation, not free money, and in recessions low-rated bonds can behave more like stocks than like bonds.
Example
A $10,000 investment-grade corporate bond with a 5% coupon pays $500 a year and returns the $10,000 at maturity. A high-yield bond offering 8% pays $800, with a meaningfully higher chance the company never returns the principal.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.