Credit rating of bonds

In "the risk of Bond", Niuniu's true feelings tell you that "investing in bonds is risky and be careful about it." does it pour cold water on you who are eager to try? Many investors are deterred by all kinds of risks, among which the most confusing one is credit risk. "is it easy for me to buy some debt?" Swallow my interest and try to cheat me out of the principal. "

But in fact, by grading different bonds, credit rating agencies effectively prompt their default risk and become the most straightforward and efficient tool for investment.

01 credit rating agency "Big three"

Bond credit rating is a measure of the probability of bond default risk. To put it bluntly, it ranks the ability of different companies in the bond market to repay debts and withstand various financial and economic pressures.

Credit rating agencies use their professional quantitative and qualitative analysis to give forward-looking opinions on a company's ability and willingness to repay interest and principal on time. Based on the credit ratings disclosed by the rating agencies, investors can pre-assess how likely the money is to return to their pockets.

Among them, Moody's Corporation Investment Services (Moody's), Standard & Poor's and Fitch International Credit rating Co., Ltd. (Fitch Group) are the three most influential credit rating agencies in the international bond market.

Some people may wonder how the famous Morningstar rating of the investment community has been lost by Niuniu. In fact, Morningstar rating is a rating system for public funds, which makes objective analysis and rating based on the past performance of the fund, and has become an important reference tool for many investors. Niuniu will be introduced in detail in the fund section after that, here we first focus on the Big three.

02 interpretation of the Secrets behind symbols: credit rating system and grading

The division of the Big three is more or less the same, mainly divided into long-term bond rating and short-term bond rating, setting up N standards, and coincidentally using almost the letters A to D to represent the company's credit rating to evaluate the solvency of bond issuers, and finally to assess credit risk.

Take Moody's Corporation's long-term credit rating as an example, with a total of 21 grades, of which the highest credit rating is Aaa and the lowest is C, and each grade is further subdivided by numbers, so fine-tuning can avoid overgeneralization of the rating results.

And Moody's Corporation took Baa as a watershed and classified the degree of credit as investment grade and speculative grade. Investment grade from Aaa to Baa, this kind of bonds have high credit standing and have little risk of default.

Bonds rated Ba or below are usually referred to as speculative bonds, also known as "high-yield bonds" or "junk bonds". This kind of bonds are considered to be highly speculative and have a high risk of default, but they often attract groups of investors because of their high yields.

03 superstitious credit rating? Beware of Waterloo!

Although credit rating is indeed an intuitive and convenient screening tool, it can only play a limited role in investment decisions, and blind superstition will accidentally bring investors into the "gap".

First, credit ratings are a reference to default risk, not advice to buy, sell or hold.

Secondly, credit rating also has different reference significance for different types of investors. If you want to keep everything low-risk, then bonds above An are the first choice, but if you are adventurous, you may be more willing to allocate high-yield B-bonds. Ratings do not tell investors which bonds are more suitable for their investment preferences.

Conclusion

Credit rating agencies through the development of a simple symbol system to provide risk reference for creditors, in order to avoid frightening credit risk. But although the rating is reliable, do not rely on it blindly.