What Are Bond Ratings?

When you begin to look into investing in bonds you will quickly come across the term, bond ratings. In order to help investor determine what the most suitable bond to invest in is, there has been a series of ratings developed by a few reputable industry companies. These ratings are design to provide the investor with risk rating profile of the bonds on offer in the market place. One of the most common has been developed by Standard and Poor's and this is referenced widely within the financial industry. The descriptions below are based on the Standards and Poor's ratings.

The rating scale is based from levels A to D, and there are multiple ratings within each level. The highest rating is the triple A, these are deemed to be the safest and less risky investments. The other levels are double A and A, the double A is a very safe investment and the A is safe but could be impacted if economic conditions change, for the worse. The B level consists of triple B, double B and B. Triple B is the highest in this level and should provide adequate protection for your investment but that protection is less that the A level ratings. Double B and B bonds respectively are not as safe as the triple B rated bonds and slightly better than the C level bonds. The investment in double B and B bonds is a speculative investment and the risk that is known to be with speculative investment should be considered. The risks are that the ability for the organisation to repay the bond maybe affected by the organisations exposure to business and economic down turns in trading.

The C level bonds are far more speculative than the B level ones, therefore your risk exposure increases significantly. The D level is given when an organisation has already defaulted on payments to existing investors. This rating may also signify that there is an active bankruptcy petition, which needless to say is an extremely risky investment to consider undertaking. The use of plus (+) or minus (-) is applied to bond ratings from double A to triple C, to further define these rating levels. You interpret these as the plus being slightly higher, meaning less risk and the minus being slightly lower with more risk. There are times when bonds do not have a rating applied to them, this will be identified with a NR (no rating) to the actual bond.

Tom has been writing for many years now. Not only does this author specialize in financial matters, you can also check out his latest web site at http://cheapmotorcyclehelmetsshop.com/ which reviews and lists the best motorcycle helmets for motorcycle safety.

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