FACTORS THAT WILL INFLUENCE BONDS PRICE
An important aspect of investing in bonds is credit ratings, this is a term used to describe a bond issuer’s ability to pay its debts, make all interest and principal payments in full and on schedule. Investors will always consider credit ratings before making any investment decision, and credit ratings of the various investments products are updated continuously. The three main credit rating agencies are:
- Standard & Poor’s
- Moody’s
- Fitch Group
Ratings are described in the following table:
| Table Key | Moody’s | Fitch | S&P |
|---|---|---|---|
| Highest Grade Credit | Aaa | AAA | AAA |
| Very High Grade Credit | Aa1, Aa2, Aa3 | AA+, AA, AA- | AA+, AA, AA- |
| High Grade Credit | A1, A2, A3 | A+, A, A- | A+, A, A- |
| Good Credit Grade | Baa1, Baa2, Baa3, Baa4 | BBB+, BBB, BBB- | BBB+, BBB, BBB- |
| Speculative Grade Credit | Ba1, Ba2, Ba3 | BB+, BB, BB- | BB+, BB, BB- |
| Very Speculative Credit | B1, B2, B3 | B+, B, B- | B+, B, B- |
| Substantial Risks – In Default | Caa1, Caa2, Caa3, Ca | CCC, CC, C. RD, D | CCC+, CCC, CCC-, CC, C, D |
The higher the rating the more attractive the investment will be, usually anything above BBB or Baa is considered investment grade and anything below BBB or Baa is commonly called junk grade or as speculative.