| Credit Rating ⓘ | Expected Return ⓘ | Yield ⓘ | Historical Default Rate ⓘ | Premium to 5Y Treasury ⓘ | Excess Yield / Expected Loss From Defaults ⓘ | Return if High Default Rate ⓘ |
|---|---|---|---|---|---|---|
| AAA | 4.91 | 4.93 | 0.028 | 0.51 | 31.55 | 4.86 |
| AA | 4.93 | 5.01 | 0.132 | 0.53 | 7.7 | 4.69 |
| A | 5.11 | 5.24 | 0.225 | 0.7 | 6.22 | 4.7 |
| BBB | 5.24 | 5.54 | 0.501 | 0.84 | 3.79 | 4.34 |
| BB | 5.23 | 6.29 | 1.761 | 0.83 | 1.79 | 2.06 |
| B | 4.72 | 7.29 | 4.286 | 0.32 | 1.12 | -3.0 |
| CCC | 7.08 | 11.68 | 7.667 | 2.68 | 1.58 | -6.72 |
The risk of a bond, estimated by credit rating agencies. AAA bonds are the safest. Bonds rated BBB and above are considered to be Investment Grade. Bonds rated BB and below are considered to be 'Junk' bonds.
The expected return, including defaults. We assume that bonds will default at the rate displayed in the Historical Default Rate column. In the event of a default, we assume bondholders will lose 60% of their investment.
The annual return a bondholder will receive if the bond does not default.
The annual rate at which bonds of this Credit Rating have defaulted historically, according to data from Moody's from 1920 to 2017. We annualize the 5-year, historical default rates.
The multiple by which defaults can exceed historical rates and still allow the bond to perform as well as Treasuries. If this is 3, then if over the next 5 years, defaults are 3 times higher than they have been historically, 5-year corporate bond returns should match 5-year treasury bonds.
The expected return if default rates are three times higher than they have been historically, and if bondholders only receive 20% of their investment in bankruptcies, below the historical, 40% average. This can happen in a poor economy.