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How Bonds Are Rated

In Chapter 6, we discussed the concept of risk management and the various types of risk that are associated with any investment. One of several risks associated with bonds and bond funds is the risk of principal. Stated another way, there is a chance that you will not get back some (or all) of your hard-earned money that you lent to the business or government agency. Table 8-2 is the same as Table 6-1, which illustrates the manner in which Standard & Poor's and Moody's rate bond issues.

Table 8-2. Rating Bond Issues
Bond RatingsS&PMoody's
Highest qualityAAAAaa
High qualityAAAa
Upper medium qualityAA
Medium gradeBBBBaa
Somewhat speculativeBBBa
Low grade, speculativeBB
Low grade, default possibleCCCCaa
Low grade, partial recovery possibleCCCa
Default, recovery unlikelyCC



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