Which type of corporate bond typically offers higher yields?

High-yield or junk bonds are known for offering higher yields compared to other types of corporate bonds. The primary reason for this is that these bonds are issued by companies with lower credit ratings, which indicates a higher risk of default. Investors demand a higher yield as compensation for taking on this increased risk associated with the issuer's financial instability. This higher return potential makes high-yield bonds appealing to investors who are willing to accept the risk in hopes of earning greater returns.

In contrast, investment grade bonds, which are issued by financially stable companies, generally provide lower yields due to their reduced risk of default. Government bonds are considered very safe and typically yield even less than investment-grade bonds, as they are backed by the government’s credit. Savings bonds also offer lower yields, appealing primarily to those looking for safe and secure investment options. Therefore, high-yield or junk bonds stand out in their potential for higher returns, reflecting the principles of risk and return in the investment landscape.