How Credit Rating Changes Your Bond Yield
A bond's expected yield is built from the safe Treasury rate plus a credit spread that compensates investors for the issuer's default risk. A top-rated AAA corporate bond trades close to Treasuries with a narrow spread, but as the rating drops, the spread widens and the expected yield climbs. This calculator takes a Treasury yield, credit rating, investment amount, and term, then shows the expected yield and how much extra income you'd earn compared to a Treasury of the same term.
Example Spreads by Rating
| Rating | Example Spread |
|---|---|
| AAA | +0.3%pt |
| AA | +0.6%pt |
| A | +1.0%pt |
| BBB | +2.0%pt |
| BB and below (speculative) | +4.0%pt or more |
Credit spreads tend to widen when the economy weakens and narrow when conditions improve, so bonds with the same rating can carry different yields depending on when they were issued. Longer maturities also usually demand a higher yield, since they carry more exposure to rate changes and default risk over time. The spreads in the table are illustrative examples — always check an individual bond's actual rating, terms, and the issuer's financial health before investing.
Frequently Asked Questions
It's the extra yield a corporate bond pays over a comparable Treasury bond. Higher default risk means a wider spread and higher expected yield.
No. Lower ratings carry more default risk. Speculative-grade bonds (BB and below) need their financials checked, not just the yield.
※ Spreads change with market conditions and may differ from actual issue yields; this is an estimate for reference only.