About Bond Ratings
There are three companies that assign a rating to virtually every bond issued in the United States:
- Standard & Poor's
- Moody's
- Fitch
The ratings serve two functions. First, they help investors make a decision about the quality of the bond (i.e. the likelihood of the issuer defaulting on the bond). Second, the ratings are used to classify every bond into one of two categories: "investment grade" bonds, or "high yield" bonds. These two bond categories are widely used to build portfolios, with every investor deciding how much of their portfolio to allocate to investment grade versus high yield bonds. High yield bonds are sometimes referred to as "junk bonds".
Unfortunately, the three companies don't use the same ratings system. But the rating systems are close enough to be workable:
Investment grade
| Moody's | Standard & Poor's | Fitch |
| Aaa | AAA | AAA |
| Aa1 | AA+ | AA+ |
| Aa2 | AA | AA |
| Aa3 | AA- | AA- |
| A1 | A+ | A+ |
| A2 | A | A |
| A3 | A- | A- |
| Baa1 | BBB+ | BBB+ |
| Baa2 | BBB | BBB |
| Baa3 | BBB- | BBB- |
High yield
| Moody's | Standard & Poor's | Fitch |
| Ba1 | BB+ | BB+ |
| Ba2 | BB | BB |
| Ba3 | BB- | BB- |
| B1 | B+ | B+ |
| B2 | B | B |
| B3 | B- | B- |
| Caa1 | CCC+ | CCC+ |
| Caa2 | CCC | CCC |
| Caa3 | CCC- | CCC- |
| Ca | CC | CC |
| C | C | C |
| D | D |