High grade credit bonds

The research compares the model spread to the one observed in the market. In order to determine the term structure of credit spread. Eons uses historical probabilities by Moody s database, adopting a recovery rate of 48.38%. The empirical evidence is that bonds with high investment grade have an upward credit spread curve. Therefore, the spread between defaultable and default-free bonds increases as maturity increases. Conversely, speculative-grade bonds have a negative or flat credit yield curve (Figure 8.7). 

Corporate bonds fall into two broad credit classifications investment-grade and high-yield (or "junk") bonds. The largest holders of corporate bonds are institutions,- the complexity as well as the fact that corporate bonds are fully taxable at all levels (federal, state, and local) usually makes individual investors shy away. 

To simplify, corporate bonds fall into two broad credit classifications investment-grade and high-yield. 

---