bond ratings

Bonds are ranked on the basis of the degree of risk associated with timely payment of their interest and principle. Bond rating agencies (such as Standard & Poor's) use a grading system as follows (1) AAA: highest quality (called 'gilt edged'). (2) AA: high quality. (3) A: upper medium grade. (4) BBB: medium grade. (5) BB: has speculative elements. (6) B: speculative. (7) CCC: speculative with possibility of default. (8) CC: most speculative. (9) C: lowest gradable quality. (10) DDD: in default with possibility of recovery. (11) DD: in default and arrears. (12) D: in default, with little or no value. Bonds rated 'BBB' or higher are considered investment grade suitable for financial institutions with fiduciary responsibilities. Bonds rated below 'B' are considered speculative grade and are called high yield or junk bonds which, due to greater likelihood of their default, must pay higher interest rates to attract investors.