What do these ratings things mean anyway?

I’ve been asked about the importance of ratings and what they mean.

IN GENERAL

The main importance of a rating is to the entity issuing bonds.  The higher the rating (AAA being the highest) the lower the interest rate to the entity selling the bonds.  Entities can be the government, municipality or corporation.

Another importance is to those individuals, institutions or companies who own bonds.  If  you own a bond and rating goes up, your bond should be worth more money.  If you own a bond and the rating goes down, if you were to sell the bond, it would be worth less than you paid for it.

MORE INFORMATION (from the horse’s mouth so to speak)

Moody’s : http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

S/P:  http://www.standardandpoors.com/ratings/definitions-and-faqs/en/us

Fitch:  http://www.fitchratings.com/web_content/ratings/fitch_ratings_definitions_and_scales.pdf

OTHER:

MBIA:  http://www.mbia.com/about/about_main.html

AMBAC:  http://www.ambac.com/

 

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