Corporate Bond Yields

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Rating agencies such as Moody’s Investors Service and Standard & Poor's perform in-depth financial strength analyses of corporations that raise funds by issuing bonds or similar credit instruments. The agencies then assign credit ratings based on their analysis. The company being rated pays for the analysis because it needs the rating to sell its bonds. 

The "maturity date" for a bond is the date that the issuing corporation must redeem the bond at face value. The "yield to maturity" is the total return (interest plus principal gain) that you would receive if you held the bond to maturity.

This table, provided by BondVillage (www.BondVillage.com) lists the current average yields to maturity for Standard & Poor's major bond ratings for a variety of years to maturity (YTM).

Using the Table

Bond Investors
Bond buyers could use the the table to spot undervalued and overvalued bonds. That is, all else equal, bonds with above-average yields would be considered undervalued while those with below-average yields are overvalued. Bond investors not interested in holding bonds to maturity might consider selling overvalued bonds and replacing them with undervalued bonds. However, caution is advised. Significantly higher-than-average yields might signal financial problems as explained below.

Stock Investors
Stock investors could also use the yield table to identify corporations that bond investors think are headed for trouble. For instance, say that the table shows that A-rated, 5-year to maturity bonds are yielding 4.75%, on average, but ABC Corporation's 5-year, A-rated bonds are yielding 8.5%. That information tells you that bond buyers are demanding a higher bond yield (risk premium) before they'll buy ABC's bonds. That's a "red flag" signaling that a company could be facing financial problems, which would sink its stock price.