Which description best defines High Yield Bonds?

• A. Bonds with higher credit quality and lower yields
• B. Bonds with lower risk and senior status
• C. Bonds with lower credit quality and higher yields
• D. Bonds issued only by governments

Answer: (C)

High Yield Bonds are bonds issued by entities with lower credit quality, below investment grade. Because default risk is higher, investors require a higher return, so these bonds offer higher yields to compensate for that risk. They are usually corporate, not government, and the defining idea is the credit quality paired with the corresponding yield, not seniority or safety. The description that links low credit quality with high yields best captures what high yield bonds are.