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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Do we need ratings agencies?
-
Banks given additional 72 hours to investigate suspicious paymentsNew rules will allow banks to pause suspicious payments for longer, giving them time to investigate cases of potential fraud
-
What financial support can you get if you are suffering with long-term illness?Health is wealth and more important than any material riches. But too often, long-term illness brings financial worries of its own. What financial support can you get if you are ill?
