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Where Credit Is Due: A Look at the Ratings

Where Credit Is Due: A Look At The Ratings Splash image

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:

  • How likely am I to get my money back at maturity? and
  • How likely am I to get my interest payments on time?

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Discussion

John from California posted over 2 years ago:

This is simplistic at best. Example, I have a bond bought as AAA insured by MBIA. Bond does not have underlying rating established. MBIA was downgraded to BBB so bonds are downgraed to BBB even though they are ESCROWED to maturity and should be AAA. Bond ratings can drop several grades at once reflecting the raters inability to track financial condition changes. The investor has a better feel for his bond by reading published financials from the municipality; but, these are often late or not released. More regulation is needed to monitor bond sales and reporting requirements.


Donald from California posted over 2 years ago:

She should have covered Tier 1 bonds

Tier 1 bonds are lower-rated bank bonds. That means, if the issuer defaults, all of the bank’s other creditors must be repaid before the bond investors recoup their money. Tier 1 bonds have unlimited maturity. The issuer pays interest on the bond only when the bank also pays a dividend.


Norman from Washington posted about 1 year ago:

This is a very good presentation of Bonds.


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