Question

Bond ratings are an important element of the bond market. Explain what bond ratings are, who issues the ratings, and what the ratings mean to the average investor

Answer 1

Bond ratings are issued by credit rating agencies.

Bond ratings are ratings issued regarding the credit quality of the bonds. They indicate the credit risk and default risk of the bonds. They provide information and indications of the likelihood of a default occurring on the bonds.

For the average investor, bond ratings help quickly identify the quality of the bonds. Higher the rating, higher the quality and lower the credit risk. Bonds can be categorized into high quality, average quality and junk based on these ratings.