What do the credit ratings on bonds mean?

[genchan]

I don't know a lot about bonds. They have different credit ratings like Aaa or Baa. What do these credit ratings mean, who gives them and how do they decide on them?

[Tree0164]

Moody's

Meaning



Aaa

AAA

Best quality, with the smallest risk. Issuers exceptionally stable and dependable



Aa

AA

High quality, with slightly higher degree of long-term risk



A

A

High-medium quality, with many strong attributes but somewhat vulnerable to changing economic conditions




Baa

BBB

Medium quality, currently adequate but perhaps unreliable over long term



Ba

BB

Some speculative element, with



moderate security but not well



safeguarded



B

B

Able to pay now but at risk of



default in the future



Caa

CCC

Poor quality, clear danger of default



Ca

CC

Highly speculative quality, often in default



C

C

Lowest-rated, poor prospects of repayment though may still be paying



—

D

In default

[terry1156]

The credit rating given to bonds is an independent assessment of the creditworthiness by a credit rating agency. There are a number of these credit rating agencies. They look at whoever issued the bond and measure the probability of the timely repayment of principal and interest of a bond. "Triple A" is usually the the highest grade and "Triple B" (or Baa) is the lowest in investment grade. Any grade below Triple B is usually referred to as a "junk bond."