Issued by large corporations, these corporate bonds are often called “investment grade” because they are issued by very creditworthy companies with high credit ratings. Standard & Poor’s assigns credit ratings of AAA, AA, A or BBB to investment-grade bonds.
Investment-grade corporate bonds offer a slightly higher stream of income than government bonds because they are not guaranteed by a government. The difference in rates (interest-rate spread) between corporate and government bonds generally rises and falls as a result of investor confidence, investors’ willingness to take risks, the outlook for the economy and growth in corporate profits. (Interest-rate spread – or simply spread – is used to describe the difference in rates between different types of bonds.)
With investment-grade corporate bonds, investors assume the risk that the issuing company might not be able to make its interest and principal payments. The risk of investment-grade corporate bonds, however, tends to be very low.
To learn about the funds we offer that invest in investment-grade corporate bonds, see:
PH&N Bond Fund
PH&N Total Return Bond Fund
RBC Bond Fund
High-Yield Corporate Bonds
High-yield corporate bonds are sold by corporations that do not have the same high credit rating as investment-grade issuers. Standard & Poor’s assigns credit ratings of BB or lower to high-yield bonds.
Historically, high-yield bonds have provided investors with a higher yield than investment-grade corporate or government bonds. This higher yield helps to compensate investors for the risk of the issuing company not making its interest and principal payments.
Due to their higher risk of default, the interest-rate spread between high-yield bonds and government bonds is wider than the spread between investment-grade corporate bonds and government bonds.
To learn about the funds we offer that invest in high-yield corporate bonds, see:
RBC Global Corporate Bond Fund
PH&N High Yield Bond Fund
RBC High Yield Bond Fund
RBC Global High Yield Fund