What happens to yields as bond ratings improve?

When bond ratings improve, yields decrease, reflecting lower credit risk associated with the bond. Credit ratings are an assessment of the issuer's ability to repay its debt. A higher rating signifies a lower likelihood of default, making the bond more attractive to investors. As the perceived risk decreases, investors will demand a lower return for taking on less risk. This decrease in yields aligns with the basic principles of bond pricing: as the creditworthiness of an issuer improves, the price of the bond increases and yields drop since they move inversely to bond prices. Therefore, the relationship between improved ratings and yields is direct and clearly established in financial markets.