S&P, Moody's, and Fitch are all rating agencies that gather up information about bonds and the companies that issue them. They release ratings about the relative strengths of individual bonds so that investors can make better decisions.
Rating agencies look at things like the financials of a bond issuer, debt loads, and indicators. If a bond is ranked high, there is a low chance of default, meaning that the company or issuer will probably pay you what they're supposed to and you won't lose your money. Lower ratings mean bigger risks.
In the S&P world, BBB is the highest rating for an "investment grade" bond. Anything lower than BBB is considered a junk bond.
Caveat emptor. (That's Latin for "read the fine print.")
Related or Semi-related Video
Finance: What are Bond Ratings, and What...68 Views
- a la shmoop. what our bond ratings and what do they mean?
all right well pressed, we'd say Sean Connery,
but Daniel Craig has been pretty amazing and exceeded all expectations right? okay [Actors Connery and Craig shown]
okay so we love double-oh-seven but well that has nothing to do with this topic.
here we're referring to how risky or safe a given bond is. if you just landed
on earth remember that a bond is a promise to pay back money after having
rented it in the form of interest payments for a given period of time. and
some bonds are well ,they're risky. famously the bonds issued by the
territory of Puerto Rico went crashing to the ground when the country [Puerto Rican city pictured waving a white flag]
essentially declared bankruptcy in 2017. well corporate bonds die as well as
government bonds. when the internet and wireless technology radically changed
the economics of the radio and newspaper industries well many of those
corporations saw their bonds kissed the perimeters of bankruptcy. so bonds can be
risky despite the vast 99% plus of them who fully pay back their interest and
principal on schedule. but some don't though or have to delay payments or have
other issues and to account for this risk and to communicate that risk to [two workers from Chase bank stand hands on hips shaking heads]
would-be investors, there are rating services who assess the borrower's
ability and likelihood to pay back the money they have promised to the you know
pay back. well the top ratings are shown here,
those triple-a bonds are a really good ones. if a bond flunks completely well it
gets something in the C range. that we have California grade inflation here and [bond rating chart pictured]
you know talk about grading on a curve. and that is how you get your bonds
shaken and not stirred. [man holds martini glass]
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