Bond Rating
A letter-grade assessment of a bond issuer's creditworthiness.
What is Bond Rating?
A bond rating is a letter-grade assessment issued by credit rating agencies — primarily Moody's, S&P Global, and Fitch — that reflects the likelihood that a bond issuer will meet its debt obligations. Ratings range from AAA (highest quality, lowest default risk) down to D (in default). Bonds rated BBB−/Baa3 and above are classified as investment grade; those below are high-yield or junk bonds. Ratings directly affect borrowing costs: lower-rated issuers must pay higher coupon rates to compensate investors for additional risk.
Example
When S&P downgraded US sovereign debt from AAA to AA+ in August 2011, Treasury yields briefly rose as investors priced in the perception of marginally higher risk, demonstrating how ratings move markets.