Credit rating
Most bonds are allocated a credit rating to indicate to an investor the likelihood of a subsequent default...
Most bonds are allocated a credit rating to indicate to an investor the likelihood of a subsequent default. The three firms, or 'agencies' that specialise in awarding these ratings, Standard and Poors, Moody's and Fitch do so by looking at a number of factors that could increase or decrease this risk including the credit quality of the issuer, their ability to cover interest payments from profits and any security- usually in the form of assets such as property- on offer. The ratings then vary from AAA 'triple A' for safe, low risk bonds, typically issued by high quality institutions like the UK government and blue-chip companies, down to D for those which have failed to make a coupon payment on time and are therefore in default. Many fund managers are obliged by the regulator to hold 'investment grade' bonds meaning those with a credit rating of BBB and above.
See Tim Bennett's video tutorial: Do we need ratings agencies?
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
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Revolut launches its first stocks and shares ISA with BlackRock and Vanguard ETFs
A year after getting its UK banking licence, Revolut is now launching its first stocks and shares ISA with a suite of exchange-traded funds (ETFs) from BlackRock and Vanguard.
-
What does Trump’s ‘Big Beautiful Bill’ mean for the US economy?
Donald Trump’s budget bill will slash taxes, but is expected to add at least $3 trillion to US national debt