Reflects the rating assigned by Standard & Poor's or Moodys to fixed-income securities. It rates the issuing entity's capacity to meet the repayment terms of the security. Bonds issued and backed by the federal government are of the highest quality and are considered superior to bonds rated AAA, which is the highest possible rating a corporate bond can receive. Investment quality ratings include AAA, AA, A, and BBB. Bonds rated BB or lower are considered high yield bonds.
Average credit quality is the weighted average of the bonds in a funds portfolio. The average credit quality of bond funds ranges from AAA (highest) to B (lowest). U.S. government bonds carry the highest credit rating, while bonds issued by speculative or bankrupt companies usually carry the lowest credit ratings.
A measure of a bond issuer's ability to repay interest and principal in a timely manner.
the likelihood of default rated from AAA and below
For fixed-income investments, credit quality is an estimate of the likelihood of the bond issuer to default either on interest or principal payments. Independent rating agencies, most notably Standard & Poor's or Moody's, issue quality ratings as a service to investors. Morningstar classifies bond mutual funds by their quality based on the average S&P rating for all holdings in the portfolio as follows: high quality (AA or higher), medium quality (A to BBB), and low quality (BB or lower). Investors demand a higher yield on bonds with lower credit quality as compensation for the greater risk of default. The difference in yield compared to U.S. Treasury securities is referred to as “credit spread”.
Generally meant to refer to an obligor's relative chance of default, usually expressed in alphabetic terms (for example, Aaa, Aa, A). CreditMetrics makes use of an extended definition that includes also the volatility of up(down)grades.
encompasses both the likelihood of a counterparty defaulting as well as possible recovery rates in the event of a default.
An indication, expressed as a rating, given to a bond or preferred stock based on its value as a sound investment. Ratings are assigned from AAA (highly unlikely to default) to D (companies in default). The rating is based on such things as the issuer's reputation and its record in paying interest.
