what is a bond rating 
a bond rating is a way to measure the creditworthiness of a bond which corresponds to the cost of borrowing for an issuer these ratings typically assign a letter grade to bonds that indicate their credit quality private independent rating services such as standard poor s moody s investors service and fitch ratings inc evaluate a bond issuer s financial strength or its ability to pay a bond s principal and interest in a timely fashion understanding bond ratingsmost bonds carry ratings provided by at least one of the following three chief independent rating agencies to determine a bond s rating these agencies conduct a thorough financial analysis of a bond s issuing body whether they are u s treasuries or bonds from international corporations based on each agency s individual set of criteria analysts determine the entity s ability to pay their bills and remain liquid while also taking into consideration a bond s future expectations and outlook the agencies then declare a bond s overall rating based on the collection of these data points pricing yield and a reflection of long term outlookbond ratings are vital to alerting investors to the quality and stability of the bond in question these ratings consequently greatly influence interest rates investment appetite and bond pricing higher rated bonds known as investment grade bonds are viewed as safer and more stable investments such offerings are tied to publicly traded corporations and government entities that boast positive outlooks investment grade bonds contain aaa to bbb ratings from standard and poor s and fitch and aaa to baa3 ratings from moody s investment grade bonds usually see bond yields increase as ratings decrease u s treasury bonds are the most common aaa rated bond securities 1non investment grade bonds junk bonds usually carry ratings of bb to d for standard and poor s and fitch and baa1 to c for moody s in some cases bonds of this nature are given not rated status although bonds carrying these ratings are deemed to be higher risk investments they nevertheless attract certain investors who are drawn to the high yields they offer some junk bonds are saddled with liquidity issues however and can feasibly default leaving investors with nothing 1in aug 2023 fitch ratings downgraded the long term ratings of the united states to aa from aaa due to the anticipated fiscal deterioration over the next three years increasing government debt burden and the erosion of governance related to aa and aaa rated peers over the last two decades that has resulted in repeat debt limit standoffs and 11th hour resolutions 2role of the rating agencies in the 2008 financial crisismany wall street watchers believe that the independent bond rating agencies played a pivotal role in contributing to the 2008 economic downturn in fact it came to light that during the lead up to the crisis rating agencies were bribed to provide falsely high bond ratings thereby inflating their worth one example of this fraudulent practice occurred in 2008 when moody s downgraded 83 of 869 billion in mortgage backed securities which were given a rating of aaa just the year before 3in short long term investors should carry the majority of their bond exposure in more reliable income producing bonds that carry investment grade bond ratings speculators and distressed investors who make a living off of high risk high reward opportunities should consider turning to non investment grade bonds 