Bond Rating

AAA

DEFINITION of 'Bond Rating'

A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its the ability to pay a bond's principal and interest in a timely fashion.

INVESTOPEDIA EXPLAINS 'Bond Rating'

Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves.

To illustrate the bond ratings and their meaning, we'll use the Standard & Poor's format:

AAA and AA:High credit-quality investment grade
AA and BBB:Medium credit-quality investment grade
BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk bonds"
D: Bonds in default for non-payment of principal and/or interest

RELATED TERMS
  1. Negative Watch

    A status that the credit-rating agencies (Standard and Poor's, ...
  2. Nationally Recognized Statistical ...

    The formal term to describe credit rating agencies that provide ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  5. Credit Quality

    One of the principal criteria for judging the investment quality ...
  6. Constant Proportion Debt Obligation ...

    A type of synthetic collateralized debt instrument that is backed ...
RELATED FAQS
  1. How does face value differ from the price of a bond?

    Face value, or par value, is equal to a bond's price when it is first issued, but thereafter, the price of the bond fluctuates ... Read Full Answer >>
  2. What determines the price of a bond in the open market?

    One of the most basic concepts that investors should become familiar with is how bonds are priced. Bonds do not trade like ... Read Full Answer >>
  3. What is the difference between a gilt edged bond and a regular bond?

    A gilt edged bond is a high-grade bond issue. The term "gilt" is of British origin and originally referred to debt securities ... Read Full Answer >>
  4. Are high-yield bonds better investments than low-yield bonds?

    Most bonds typically make periodic payments, known as coupon payments, to the bondholder. A bond's indenture, which will ... Read Full Answer >>
  5. How can I calculate the carrying value of a bond?

    The carrying value of a bond is the net amount between the bond’s face value and any unamortized premiums or minus any amortized ... Read Full Answer >>
  6. How can I look up average banker's acceptance yields?

    Average banker's acceptance yields are published regularly in the Wall Street Journal and updated continuously on WSJ.com. ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  2. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  3. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  4. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  5. Bonds & Fixed Income

    Why Bad Bonds Get Good Ratings

    Credit ratings are not the only tool to rely on when assessing bonds. Find out why they sometimes fall short.
  6. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  7. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  8. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  9. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  10. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.

You May Also Like

Hot Definitions
  1. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  2. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  3. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  4. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
Trading Center