Bond Rating


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.


Loading the player...


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

  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. Junk Bond

    A colloquial term for a high-yield or non-investment grade bond. ...
  4. Investment Grade

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

    The highest possible rating assigned to the bonds of an issuer ...
  6. Default Risk

    The event in which companies or individuals will be unable to ...
Related Articles
  1. 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.
  2. Stock Analysis

    This is What Warren Buffet's Portfolio Looks Like

    Learn about some of the major holdings Warren Buffett has in his portfolio. Understand how these companies fit his value investing style.
  3. Mutual Funds & ETFs

    Top 3 High Yield Bond Mutual Funds

    Read about three high-yield bond mutual funds and why they are currently popular, and learn the advantages and disadvantages of investing in high-yield bonds.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Total USD Bond Market

    Learn about the iShares Core Total USD Bond Market ETF and how it contains holdings that have noninvestment grade ratings, unlike many other bond funds.
  5. Investing Basics

    Explaining Bond Ratings

    A bond rating is a grade given to a bond to indicate its creditworthiness.
  6. Bonds & Fixed Income

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  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 many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
  6. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center