- CFA Exams
- 2024 Level I
- Topic 7. Fixed Income
- Learning Module 14. Credit Risk
- Subject 2. Credit Rating Agencies and Credit Ratings
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Subject 2. Credit Rating Agencies and Credit Ratings PDF Download
Nearly every bond issue in developed debt markets carries credit ratings classifying creditworthiness. The rating agencies (Moody's, S&P, and Fitch) rate both issuers and issues.
- Issuer ratings are meant to address an issuer's overall creditworthiness - its risk of default.
- Ratings for issues incorporate such factors as rankings in the capital structure.
Credit ratings enable comparisons of the credit risk of debt issues and issuers within and across industries.
The three major global credit rating agencies (Moody's, S&P and Fitch) use similar, symbol-based ratings that assess a bond issuer's risk of default and the potential loss the investor may suffer.
- Bonds rated Baa3/BBB- or higher are called "investment grade".
- Non-investment-grade or high-yield bonds: BB+ or lower/Ba1 or less. They represent substantial to very high credit risk.
Risks in Relying on Agency Ratings
There are risks in relying too much on credit agency ratings.
User Contributed Comments 3
User | Comment |
---|---|
johntan1979 | From previous module: credit spread widens before a downgrade. |
HolzGe1 | The notes dont mention the rating agency gets paid by the issuer, so they're about as "independent" as the company's auditor :S Gotta love financial markets! |
cfaguy | promote capital market integrity, it's the same as asking non-believer to worship, but different fields "Khalifa." |
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