When companies borrow from investors rather than banks, they issue bonds. The market for these bonds is large, and the prices investors are willing to pay reveal a great deal about corporate health and economic expectations.
Yield and price
A bond pays a fixed coupon. When its price falls, its yield rises, and vice versa.
Credit ratings
Ratings agencies assess the likelihood a borrower will repay. Lower ratings mean higher yields to compensate for risk.
What spreads signal
The extra yield over government bonds widens when investors grow nervous about the economy.
Key takeaways
- Yield and price
- Credit ratings
- What spreads signal
