Bonds (16)

How are bonds rated?

How do you know if an issuer is likely or not likely to default in paying back your principal or in delivering the agreed periodic coupon payments?

There are rating agencies, independent of the corporations issuing the bonds, that analyse the credit risk of bonds and provide a rating scale for the benefit of investors.

Credit rating is an objective and impartial third-party opinion on the ability and willingness of an issuer of a bond to make full and timely payments of principal and interest over the life of the bond.

The rating is given in the form of standard rating symbols, and is designed to rank, within a consistent framework, the degree of the default risk of a particular bond relative to others in the market.

The rating ranges from the highest grade (an AAA according to the RAM rating) given to the best credit risk, down to C which is the lowest grade before actual default