Comparative Yield Assessment between Corporate Bonds

In the bond markets, various types of debt securities are traded, each with unique features and associated risk factors. One important characteristic of a bond is its credit rating, which is provided by rating agencies to indicate the issuer's creditworthiness. Investors rely on these ratings to assess the risk and potential return on investment.

Consider a corporate bond issued by Company ABC, which currently holds a credit rating of BB. This bond is priced at 95% of its face value and offers a 6% annual coupon rate. Another bond, issued by Company XYZ, has a credit rating of A and is priced at 105% of its face value with a 4% annual coupon.

Given the information above, which bond would typically be expected to provide a higher yield to maturity (YTM) to compensate for the greater perceived risk?