What is a Bond Rating?

Answer:
A bond is a type of loan in which

an investor agrees to loan money to a company in exchange for a predetermined interest rate. A bond rating measures the quality and safety of a bond.

Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings evaluate the financial strength of the issuer of each bond whether issued by the government or a corporation. The rating or grade assigned to a bond lets investors know how safe and secure a bond may be.

Standard & Poor’s rating of “AAA” is the best possible rating for a bond and the worst possible rating is “D.” “Aaa” is the best possible rating for Moody’s Investors Service and “C” is the worst rating. Fitch Ratings use “AAA” in the same manner as Standard & Poor’s. A “D” rating equals “in default.” If a bond is given a low rate it is usually considered a “speculative” investment.

A bond rating indicates whether or not a debt issuer will be able to meet repayment schedules and it also dictates any interest rate paid. BBB (or better) rated bonds are considered investment grade bonds which are considered suitable for purchase by institutions such as banks and insurance companies.