How are bonds rated, and what ratings are considered risky?

Asked by Kathleen

2 Answers

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Answered by Tracy Scott Burke, CFP®, ChFC® in Harrisburg, PA
Bonds are rated by several ratings agencies and each have their own method. AAA-rated (sometimes A3) are the best rating followed by AA, A, BBB, BB, B, CCC, CC, C. Some agencies do not use the C's. In some cases Baa will be used in lieu of BBB. BBB bonds and above (AAA, AA, A) are considered investment-grade bonds and BB and below are considered junk bonds (higher levels of risk). US government issued bonds (believe it or not) are still considered the safest bond security in the world and are generally rated by most agencies as AAA. | 11.26.13 @ 21:00
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 14:07
Answered by Michael Keeler, CFP®, CLTC in Las Vegas, NV
Two of the biggest bond rating companies are Moody's and S&P. They each have different rating scales. Moody's best rating is Aaa followed by Aa1, Aa2, Aa3, A1, A2, A3 and so on. S&P has a different system, starting at AAA followed by AA+, AA, AA-, A+,A, and so on.
Top rated bonds are the safest, but usually have the lowest returns. As you go down the scale, you are taking on more risk, but can get better returns
For more on the credit ratings, you can visit http://en.wikipedia.org/wiki/Credit_rating | 11.27.13 @ 16:01
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 14:07
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