Investing in Bonds

Credit Ratings

1

When an investor invests their money with bonds, the greatest fear is that they won’t get their money back and that the organization will default on their bond payments.

2

If a company defaults on a bond, there is a chance that the investor will not get their money back. As a result, a credit rating system was developed to inform investors on how secure certain bonds are.

3

The lowest rated bonds are called junk bonds and they have a rating of BB and below. Junk bonds are high risks bonds that have very high interests rates (i.e. Turkey issued 20% government bonds in 2017).

4

AAA bonds are the safest and usually have lower interest rates. Following that are AA and A bonds, which are considered to be a little riskier than AAA bonds. BBB-rated bonds are medium-risk bonds.

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