What is a Bond Rating?
How Bond Ratings Work
rating agencies like Moody's and Standard & Poor's (S&P) provide a service to investors by grading based on current research. The rating system indicates the likelihood that the issuer default either on interest or capital payments.
- For S&P, the ratings vary from AAA (the most secure) to D, which means the issuer is in default.
- For Moody's, the ratings go from Aaa to C, which means the issuer is likely already in default.
Only investment grade'. BBB are considered to be suitable for by institutions. Anything below the triple-B rating is considered to be junk, or below investment grade. ratings are periodically revised based on recent data.with a rating of BBB or better are considered '
Why Bond Ratings Matter
ratings have a huge influence on the price and demand for certain . The lower the rating, the riskier the and the less the is worth. Low ratings often lead to less trading activity and thus liquidity problems. This is why downgrades (or rumors of downgrades) in an 's credit rating can have a significant impact on its and on the or industry.
Low income investors actively enhance their returns by dividing into sectors based on certain characteristics such as credit rating, yield, coupon, maturity, etc. They then find those sectors that perform most favorably for the investor under certain market conditions.ratings are not always bad. They simply there is more risk associated with a and thus, more potential for higher returns. In fact, many
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