Credit Ratings and Bond Risk

Bond credit-risk terms describe the likelihood and severity of nonpayment, the rating labels attached to that risk, and the market spread investors require for bearing it. This section keeps rating mechanics close to fixed-income pricing language.

Use rating grades and rating status for investment-grade, speculative-grade, watchlist, and downgrade language. Use rating agencies and services for agency names and rating-provider terms.

Credit enhancement terms sit in bond insurance and credit enhancement. Market compensation for credit risk sits in credit spread and risk-spread measures.

In this section

• Bond Insurance and Credit Enhancement
  Bond insurer and monoline-insurer terms used in credit enhancement and municipal bond guarantees.
  • Bond Insurer: An Overview of Monoline Insurers
    A comprehensive exploration of bond insurers, their role in the financial markets, key events, types, and much more.
  • Monoline Insurer: Financial Guarantees for Bond Issuers
    A comprehensive overview of monoline insurers, companies that provide guarantees to bond issuers for credit enhancement, their historical context, significance, and the impact of the subprime crisis.
• Credit Spread and Risk-Spread Measures
  Credit spread, default spread, G-spread, high-yield spread, nominal spread, OAS, Z-spread, and workout-period terms.
  • Benchmark Spread Measures
    Focused fixed-income entries about credit, default, government, nominal, option-adjusted, and zero-volatility spreads.
    • Credit Spread
      Extra bond yield investors demand over a safer benchmark to compensate for credit risk and related fixed-income risks.
    • Default Spread
      An in-depth explanation of Default Spread, a specific type of credit spread that focuses on default risk differences, including types, examples, and significance in finance.
    • G-Spread
      Bond spread measure comparing a bond's yield with the yield of a government bond of similar maturity.
    • Nominal Spread: Analyzing Yield Differences in Bonds
      Understanding Nominal Spread: Difference between a bond's yield and a Treasury bond yield of similar maturity, not accounting for the time structure of interest rates.
    • Option-Adjusted Spread
      Fixed-income spread measure that removes embedded-option value so callable or prepayable bonds can be compared more fairly.
    • Z-Spread
      Fixed-income spread measure that adds one constant spread to each point on the benchmark spot curve to match a bond's price.
  • High-Yield and Workout Spreads
    Focused fixed-income entries about high-yield spread analysis and workout-period risk.
    • High-Yield Bond Spread: The Extra Yield Investors Demand for Lower-Quality Credit
      Learn what a high-yield bond spread measures, why it widens or tightens, and how investors use it to read credit risk and market stress.
    • Workout Period: Understanding Yield Discrepancies in Fixed Income Securities
      A comprehensive guide to understanding the concept of workout periods in fixed income securities, including the causes of yield discrepancies and how they are adjusted.
• Rating Agencies and Services
  Bond rating, rating agency, Fitch, Moody's, Standard & Poor's, and rating-service terms.
  • Bond Rating: Method of Evaluating the Possibility of Default by a Bond Issuer
    An in-depth look at the method of bond rating, including the role of rating agencies such as Fitch Ratings, Standard & Poor's, and Moody's Investors Service, and the implications of different bond ratings.
  • Bond-Rating Agency: Assessing Creditworthiness
    An agency specializing in assessing the creditworthiness of governments, municipalities, and corporations issuing bonds. Standard and Poor and Moody's are leading US bond-rating agencies.
  • Fitch Ratings
    A thorough exploration of Fitch Ratings, its significance in the financial world, uses by investors, and its detailed rating scale.
  • Moody's: A Leading US Credit-Rating Agency
    An in-depth exploration of Moody's, one of the main US credit-rating agencies, including its history, functions, importance in finance and investment, and more.
  • Standard & Poor's Rating: Classification of Stocks and Bonds According to Risk
    A comprehensive analysis of Standard & Poor's Rating system, which classifies stocks and bonds according to their risk, issued by Standard & Poor's Corporation.
  • Standard & Poor's: Leading Financial Services Provider
    An in-depth look at Standard & Poor's, its history, services, and significance in the financial world.
• Rating Grades and Rating Status
  AAA, BBB, Baa1, Ba1, investment-grade, speculative-grade, not-rated, downgrade, fallen angel, and weighted-average rating terms.
  • Rating Actions And Unrated Status
    Fixed-income terms for downgrades, fallen angels, unrated securities, rated status, and weighted average credit ratings.
    • [NOT RATED (NR)]: Unrated Securities or Companies
      The [NOT RATED (NR)] indication used by securities rating services and mercantile agencies denotes that a security or company has not been rated, carrying neither negative nor positive implications.
    • Downgrade: A Reduction in the Rating Assigned to a Company's Debt
      A comprehensive explanation of what a downgrade means in the context of finance, how it affects companies and investors, and its broader implications.
    • Fallen Angel: Definition, Mechanisms, and Associated Risks
      An in-depth exploration of fallen angel bonds, their mechanisms, associated risks, and historical context within the financial markets.
    • Rated: Understanding Evaluated Securities and Companies
      Detailed insights into rated securities or companies that have undergone evaluation and are assigned a grade reflecting creditworthiness.
    • Weighted Average Credit Rating
      Portfolio-level credit-quality measure that summarizes the average rating profile of a bond fund or fixed-income portfolio.
  • Rating Grades And Investment-Grade Status
    Fixed-income terms for AAA, BBB, Ba1, Baa1, investment-grade, and speculative-grade credit ratings.
    • AAA Credit Rating: Definition, Criteria, and Types of Bonds
      A comprehensive guide to AAA credit ratings, including the definition, criteria, types of bonds, and more.
    • Ba1
      Ba1 is a credit rating that signifies higher credit risk, one notch below Baa1, often given to non-investment grade financial instruments.
    • Baa1: Moderate Credit Risk Bond Rating
      An in-depth look at the Baa1 bond rating, its historical context, types, key events, mathematical models, importance, applicability, examples, and more.
    • BBB: The Standard and Poor Rating of Securities
      A comprehensive examination of the BBB rating, its historical context, key events, mathematical models, and its importance in finance.
    • Investment Grade Credit Ratings: Meaning and Details
      A comprehensive overview of investment grade credit ratings, including definitions, types, importance, examples, historical context, and related terms.
    • Speculative Grade: Understanding High-Risk Investments
      A detailed exploration of speculative grade securities, their characteristics, risks, and implications in the financial markets.