Bond Ratings

Bond Ratings - Bond Ratings An issuing firm gets the bond...

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Unformatted text preview: Bond Ratings An issuing firm gets the bond rated by a rating agency; t hree firms Fitch, Moodys, and Standard & Poors rate debt. The ratings assess credit worthiness and are based on analysis of the collateral and expected cash flows that back the debt. Likelihood of default and protection in event of default (collateral, seniority, etc.). Ratings are based only on these factors, and do NOT include interest rate risk. Primarily, the ratings are based on times interest coverage (income statement) and the debt ratio (balance sheet). Therefore, highly-rated bonds (including risk-free bonds) still have risk. A change in rating materially affects borrowing costs. 1 Bond Ratings Investment Quality Bonds High-Yield Bonds (Junk Bonds) 2 Junk Bonds Junk Bonds Yields are at record lows 3 WSJ 3/19-20/11 Excerpts from American Funds: The Bond Fund of America 2. Risk factors Investing in the fund may involve certain risks including, but not limited to, those described below.Investing in the fund may involve certain risks including, but not limited to, those described below....
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Bond Ratings - Bond Ratings An issuing firm gets the bond...

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