Bond rating

The chances that bonds of all types might go into default - that is, the borrower will fail to pay the interest and/or the capital due on a bond - is rated by several credit organizations, the best known of which are Moody's and Standard & Poor's (s&p). Both organizations use a similar system to rate the safety of a bond, primarily based on a detailed examination of the credit-worthiness of the borrower and the terms of the bond. For S&P the credit rankings range from AAA (the best) to D, meaning that the bond is already in default. The Moody's ratings go from Aaa to D. However, only bonds with a rating of BBB or better (Baa in the case of Moody's) are considered "investment grade", that is, good enough for institutional investors. Bonds below these grades are colloquially termed junk bonds.

Both S&P'S and Moody's bond ratings are monitored closely by investors and therefore any change in an issuer's ratings will be matched by a corresponding movement in the market price of its debt