Where Credit Is Due: A Look at the Ratings
There are many factors that individuals must consider when making investments in fixed-income securities. Current bond yields, current bond prices, and current as well as future interest rates all may have a big impact on the return of a fixed-income investment.
One other factor investors need to evaluate is the credit quality of the issuer and the particular bond. Individuals investing in fixed-income securities typically have two major concerns:
In this article
- What Is a Credit Rating?
- How Bonds and Issuers Are Rated
- Ratings Over Time
- Ratings Scales
- What Ratings Do—and Don’t—Reveal
- For More Information
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- How likely am I to get my money back at maturity? and
- How likely am I to get my interest payments on time?
Treasury securities, backed by the credit of the U.S. government, are regarded by most investors as “safe” in terms of these two questions, with no credit risk. But what about the credit risk of other issues and issuers?
Credit ratings offer one tool investors can use to help answer these questions.
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