Bond rating

The risk of default on bonds varies from issuer to issuer. Credit-rating agencies grade bonds to help you gauge their risks.

The risk of default (whether you will get paid back or not) on bonds varies from issuer to issuer - for example, the US government is more likely to repay than the Argentinian ministry of finance, and a multinational conglomerate is safer than a small company.

Credit-rating agencies grade bonds to help you gauge their risks.The three biggest agencies are Moody's, Standard & Poor's (S&P) and Fitch IBCA. They use broadly the same system of classifying bonds, the safest being AAA (or Aaa with Moody's), the next being AA+ (Aa1 with Moody's) and so on down to the bottom end of the spectrum, where CCC-listed bonds are deemed to be at a substantial risk of default, and D-listings, where the issuer has already defaulted.

Bonds at the bottom end of the scale are known as 'junk bonds' and offer a higher yield than those with higher ratings, but they are a lot more risky to invest in.

See Tim Bennett's video tutorial: Do we need ratings agencies?

Recommended

Margin call
Glossary

Margin call

When an investor borrows to bet on markets, they put down a deposit known as “margin”.
2 Apr 2021
Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021