By Benjamin Roure L'Hermitte
A bond is a loan: when you buy one, you lend money to a government or a company, which pays regular interest, the coupon, and repays the principal at maturity. Investment-grade bonds are those rated BBB- or higher by S&P and Fitch, or Baa3 by Moody's. In November 2026, the 10-year Treasury yielded 4.84%, AA-rated corporate bonds 5.54% and high-yield bonds 8.06%. This guide explains how bonds work, what ratings mean, why prices move with interest rates, how to buy bonds and how they are taxed in the US.
- A bond is a loan to a government or a company: a regular coupon, then repayment of the principal at maturity.
- Investment grade means rated BBB- or higher (Baa3 at Moody's); below that, bonds are speculative, or high yield.
- November 2026 yields: 4.84% for the 10-year Treasury, 5.54% for AA corporates, 5.95% for BBB, 8.06% for high yield.
- When rates rise, prices fall: a 10-year bond paying 3% loses about 8% if rates move to 4%.
Bonds are often presented as the safe alternative to stocks. That holds for the risk of permanent loss with a strong issuer, less so for price swings: in 2022, the rapid rise in interest rates sent bonds down along with stocks.
For the general principles, see what is investing. Yields quoted come from Federal Reserve Bank of St. Louis data: constant-maturity Treasury yields and ICE BofA corporate bond indexes.
TL;DRA bond is a loan that pays a coupon and is repaid at maturity. Investment-grade bonds, rated AAA to BBB-, carry low to moderate default risk; high-yield bonds pay more for more risk. In November 2026, the 10-year Treasury yielded 4.84%, AA corporates 5.54% and high yield 8.06%. Bond prices fall when rates rise. You can buy Treasuries directly, individual bonds through a broker, or bond funds and ETFs. Treasury interest is exempt from state tax and municipal bond interest from federal tax.
What is a bond?
When a government or a company needs money, it can issue bonds: debt securities bought by investors. Each bond has a face value, a coupon rate set at issue, usually paid twice a year in the US, and a maturity date on which the face value is repaid. Between issue and maturity, the bond trades on the market at a price that changes.
Bond ratings: investment grade or high yield
| Category | S&P and Fitch | Moody's | What it means |
|---|---|---|---|
| Investment grade | AAA, AA, A, BBB | Aaa, Aa, A, Baa | Default risk judged low to moderate |
| Speculative (high yield) | BB, B, CCC and lower | Ba, B, Caa and lower | Higher default risk, higher coupon |
The dividing line is BBB- at S&P and Fitch, Baa3 at Moody's. AA bonds sit near the top of the scale: very strong issuers, just below AAA, which explains why their yield is close to that of AAA bonds. The lower the rating, the higher the yield an issuer must offer to attract lenders.
Bond yields in November 2026
| Bond | Yield |
|---|---|
| 3-month Treasury bill (November 5) | 4.17% |
| 1-year Treasury (November 5) | 4.28% |
| 10-year Treasury (November 5) | 4.84% |
| AAA corporate bonds (November 6) | 5.52% |
| AA corporate bonds (November 6) | 5.54% |
| BBB corporate bonds (November 6) | 5.95% |
| High-yield corporate bonds (November 6) | 8.06% |
Source: Federal Reserve Bank of St. Louis, constant-maturity Treasury yields and ICE BofA effective yield indexes. The gap between a corporate bond and a Treasury of similar maturity, the spread, is the extra return demanded for credit risk.
Why bond prices move with interest rates
A bond's price moves in the opposite direction to interest rates. A 10-year bond paying 3% a year is worth 100 when market rates are 3%. If they rise to 4%, it is worth only 91.89, because a new buyer can get 4% elsewhere; if they fall to 2%, it rises to 108.98. The longer the maturity, the stronger the effect. Holding the bond to maturity avoids the price loss, provided the issuer does not default.
How to buy bonds
- Treasuries: directly from TreasuryDirect, or through a brokerage account at auction or on the market.
- Individual corporate or municipal bonds: through a broker; minimums and liquidity vary from one issue to another.
- Bond funds and ETFs: one purchase gives access to hundreds of bonds with a stable average maturity; see index funds vs ETFs vs mutual funds.
- For cash, not bonds: money market funds and CDs, covered in our guide to money market accounts and funds.
High-yield bond funds: what to check
Most individual investors own high-yield bonds through a mutual fund or ETF, which holds hundreds of issues and spreads the default risk. On November 6, 2026, the ICE BofA US High Yield index yielded 8.06%, 3.42 points more than Treasuries of similar maturity. That extra yield pays for defaults and for price falls when the economy weakens: in recessions, high-yield funds tend to fall at the same time as stocks.
- Fees: every 0.1 point of expense ratio comes straight out of the yield; index ETFs often charge less than actively managed funds.
- Credit quality: the share of BB bonds compared with B and CCC; the lower the rating, the more frequent the defaults.
- The yield quoted: compare the standardized 30-day SEC yield between funds, rather than the distribution yield, which can include past coupons on bonds bought at higher prices.
- Duration: it measures sensitivity to interest rates; high-yield funds react more to the economy than to rates.
- Size and trading volume: a large, liquid fund trades with narrower bid-ask spreads, which matters when markets are stressed.
High yield therefore belongs with the riskier part of a portfolio, alongside stocks, rather than with the safe bonds meant to cushion a fall.
How bonds are taxed in the US
- Treasuries: interest is taxed federally but exempt from state and local income tax.
- Municipal bonds: interest is generally exempt from federal income tax, and often from state tax for residents of the issuing state.
- Corporate bonds: interest is taxed as ordinary income, federal and state.
- Gains on sale: taxed as capital gains, short or long term depending on how long you held the bond.
Where bonds fit in a portfolio
Bonds provide regular income and, often, a cushion when stocks fall. That is not a rule: in 2022, rising rates pushed both down. Their share depends on your time horizon and how much decline you can tolerate; see portfolio diversification.
Frequently asked questions
What are investment grade bonds?
Bonds rated BBB- or higher by S&P or Fitch, or Baa3 or higher by Moody's. Their default risk is judged low to moderate.
What are AA bonds?
Bonds rated AA, the second-highest rating at S&P and Fitch: very strong issuers. In November 2026, AA corporate bonds yielded about 5.54%.
Are high-yield bond funds a good investment?
They pay more than investment-grade bonds, 8.06% for the US high-yield index on November 6, 2026, in exchange for more defaults and falls that tend to coincide with stock market declines. They belong with the riskier part of a portfolio; fees and the credit quality of the fund make the difference.
What is the difference between investment grade and high yield?
High-yield bonds are rated below BBB- and carry more default risk, so they pay more: about 8.06% in November 2026 against 5.95% for BBB bonds.
Why do bond prices fall when interest rates rise?
Because new bonds pay more: a 10-year bond paying 3% loses about 8% of its value if rates move to 4%.
How do I buy Treasury bonds?
Directly from TreasuryDirect, or through a brokerage account at auction or on the secondary market. Bond funds and ETFs offer diversified exposure in one purchase.
Are bond interest payments taxable?
Corporate bond interest is fully taxable; Treasury interest is exempt from state and local tax; municipal bond interest is generally exempt from federal tax.