In the context of bonds, what does higher credit quality generally indicate?

Higher credit quality generally indicates a greater certainty of repayment. This means that bonds with high credit quality are typically issued by entities such as stable governments or reputable corporations, which have a track record and capability to meet their debt obligations. Investors view these bonds as having a lower risk of default, meaning there is a high likelihood that the principal amount will be repaid along with the interest at maturity.

Entities with high credit ratings are less likely to encounter financial difficulties that could lead to default, thus providing bondholders with confidence in receiving their payments. This characteristic is especially important for risk-averse investors who prioritize the safety of their investments.

While higher credit quality may lead to a lower potential yield compared to lower-rated securities, the primary indication of higher credit quality is indeed the assurance that the bond will be repaid in accordance with its terms, making option C the most accurate choice.