Post by Admin/YBB on Jan 8, 2021 7:55:34 GMT -6
CREDIT RATINGS are useful for assessing bond default risks. The ratings can be investment-grade [AAA, AA, A, BBB] or below inv-grade [BB, B, CCC, CC, C, D (default)]; at each level, there are further refinements, e.g. BBB+, BBB, BBB- etc. S&P & Fitch use these letter designations. Moody’s uses a mix of upper- & lower- case letters, e.g. Aaa for AAA, Baa for BBB, etc & its level refinements are Baa1, Baa2, Baa3 instead of BBB+, BBB, BBB-, etc. Term high-yield [HY] or JUNK bonds is also used for bonds below inv-grade. FALLEN ANGELS are bonds that were inv-grade recently but were downgrade to junk. Bond buyers demand appropriate yield SPREADS to compensate for CREDIT RISKS. Pension funds, insurance companies & banks hold mostly inv-grade bonds; so rating changes from BBB- to BB+, & vice versa, cause large price changes. If company prospects change after bond issuance, their rating can be UPGRADED or DOWNGRADED. MUNICIPAL bonds use similar rating designations, but they have lower defaults than corporates at any rating level. Bond FUNDS have designations based on how much HY bonds they have: CORE, CORE-PLUS, HY. Although BBB is technically investment-grade, it is considered shaky for munis, & % of “BBB & below + NR” is watched for muni funds. COUNTRIES also have credit ratings for sovereign bonds they issue.
Some small bond issues may be UNRATED or NOT-RATED [NR] because the issuers didn’t want to pay fees to credit rating agencies. These NR bonds are bought by sophisticated bond buyers that have in-house bond rating capabilities.
Bond PORTFOLIOS have overall credit ratings based on 1) the weighted-average of the credit ratings of bonds [similar to GPA in schools], or 2) the weighted-average of default characteristics of bonds [which leads to lower portfolio credit ratings]. Portfolios that have mostly high & low rated bonds are called BARBELL credit portfolios. #PersonalFinance , 1/8/21.
Some small bond issues may be UNRATED or NOT-RATED [NR] because the issuers didn’t want to pay fees to credit rating agencies. These NR bonds are bought by sophisticated bond buyers that have in-house bond rating capabilities.
Bond PORTFOLIOS have overall credit ratings based on 1) the weighted-average of the credit ratings of bonds [similar to GPA in schools], or 2) the weighted-average of default characteristics of bonds [which leads to lower portfolio credit ratings]. Portfolios that have mostly high & low rated bonds are called BARBELL credit portfolios. #PersonalFinance , 1/8/21.