| bond rating The grading of a debt security with respect to the issuer's ability to meet interest and principal requirements in a timely manner. The three major rating services  Fitch, Moody's, and Standard & Poor'suse AAA as their highest rating and grade down through Bs and Cs. (D is used only by Fitch.) Debts rated AAA, AA, A, and BBB are considered investment-grade. Higher rated bonds provide lower returns, the price an investor pays for greater safety. Compare stock rating. See also interest coverage. |
Bond rating. Independent agencies, such as Standard & Poor's (S&P) and Moody's Investors Service, assess the likelihood that bond issuers are likely to default on their loans or interest payments.
Ratings systems differ from one agency to another but usually have at least 10 categories, ranging from a high of AAA (or Aaa) to a low of D. Bonds ranked BBB (or Baa) or higher are considered investment-grade bonds.
What Does Bond Rating Mean?
A grade assigned to a bond that indicates its credit quality; private rating services such as Standard & Poor's, Moody's, and Fitch evaluate a bond issuer's financial strength, or its ability to pay principal and interest in a timely fashion, and then give a bond a rating.
Investopedia explains Bond Rating
Bond ratings are expressed with letters ranging from AAA, which is the highest rating to C (“junk”), which is the lowest rating. Different rating services use the same letter grades but use various combinations of upper- and lowercase letters to differentiate themselves. Here's how the Standard & Poor's rating system works: AAA and AA: high credit-quality investment grade; AA and BBB: medium credit quality investment grade; BB, B, CCC, CC, and C: low credit quality (noninvestment grade), or “junk bonds”; D: bonds in default for nonpayment of principal and/or interest.
Related Terms:
• Credit Rating
• High-Yield Bond
• Interest Rate
• Investment Grade
• Junk Bond
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