A.6.4. Bond Ratings
Various credit rating agencies (which are required to register with the SEC) analyze and rate the creditworthiness of bonds. A higher credit rating means a lower risk of default, which generally translates to a lower interest rate that the issuer must pay to entice bond purchasers. Bonds with credit ratings above a certain threshold, as indicated on the tables below, are considered investment grade.
The three main credit rating agencies are Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch). Nationally recognized rating agencies are required to register with the SEC.
These agencies rank investment grade bond issuers as follows:
|
Investment Grade |
|||
|
Moody’s |
S&P |
Fitch |
Investment Grade / |
|
Aaa |
AAA |
AAA |
Highest quality, minimum credit risk |
|
Aa1 |
AA+ |
AA+ |
|
|
Aa2 |
AA |
AA |
High quality, low credit risk |
|
Aa3 |
AA- |
AA- |
|
|
A1 |
A+ |
A+ |
|
|
A2 |
A |
A |
Upper medium |
|
A3 |
A- |
A- |
|
|
Baa1 |
BBB+ |
BBB+ |
|
|
Baa2 |
BBB |
BBB |
Medium quality, medium credit risk |