Above all, credit ratings affect the cost of borrowing—that is, the interest rate that will have to be paid by the issuer to attract buyers. The interest cost to the issuer is the coupon you will earn.
The principle for this is easy to explain. Think of a bond as a loan and imagine that you are a bank that is lending to a borrower. You would ask a lot of questions relating to the probability of repayment. To whom would you rather lend money: to a struggling businessman with no collateral who wants to start a business, or to IBM? The answer is obvious. Now suppose you are the struggling businessman or John Doe. Chances are that if your banker turns you down, you will find a different banker, who will charge you higher interest costs. You may even go to your neighborhood loan shark (or equivalent), who will lend you the money, but charge you a much higher interest rate than the bank.
This is also true for bonds. The most creditworthy issuers—say, large states with diverse economies, blue-chip corporations with very little debt, or the U.S. government—borrow at a lower cost. Less creditworthy clients have to pay higher interest. Consequently, bonds with the highest quality credit ratings always carry the lowest yields; bonds with lower credit ratings yield more. Note that the yield, in a sense, provides a scale of credit-worthiness: higher yields generally indicate higher risk—the higher the yield, the higher the risk.
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