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A bond rating is a means to assess a bond’s creditworthiness, which relates to how much an issuer will pay to borrow money. In these ratings, bonds are often given a letter grade indicating their credit worthiness. Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings Inc. are a few private, independent rating agencies that assess a bond issuer’s financial stability, or its capacity to make timely principle and interest payments on bonds. A bond rating is a letter-based credit score system that is used to assess a bond’s value and creditworthiness.
Bonds classified as investment grade received ratings of “AAA” to “BBB-” from Standard & Poor’s and “Aaa” to “Baa3” from Moody’s. Lower ratings apply to junk bonds.
Most bonds have ratings issued by at least one of the top independent rating companies listed below:
St. Martin’s & Co.
The Moody’s Investor Service
The Fitch Group Inc.
These organizations carry out a complete financial study of the entity issuing a bond, including U.S. Treasuries and foreign firms. Analysts assess an entity’s capacity to make payments and maintain liquidity using the specific criteria established by each agency, while also taking the outlook and predictions for the future of a bond into account. Based on the accumulation of these data points, the agencies then announce a bond’s overall rating.
