Corporate bonds and gilts Credit ratings of gilts and corporate bonds

Credit ratings

The credit rating of a bond is designed to reflect its riskiness

Gilts, government bonds and corporate bonds are given credit ratings by companies, such as Standard and Poor's and Moody's.

Investment grade bonds

Gilts, government bonds and mainly corporate bonds with a high rating - anything from AAA down to BBB - are deemed to be 'investment grade', lower risk bonds. On the corporate side, these ratings are usually given to financially robust institutions, such as utility companies and supermarkets.

High yield bonds 

'High yield' bonds, sometimes known as 'junk bonds', are issued by companies deemed to be at greater risk of being unable to pay back their debt, known as a default. In order to attract investors to take on added risk, they offer much higher rates of interest. These companies will carry a rating of BB or lower.

Gilt, government bond and corporate bond credit ratings

This table shows the Standard and Poor's ratings on gilts, government bond and corporate bonds, along with what they can tell you about the health of a particular company or government bond.

Fixed interest credit ratings explained
RatingGradeRiskiness
AAAInvestment GradeHighest quality - lowest likelihood of default
AAInvestment GradeHigh quality - very low likelihood of default
AInvestment GradeStrong - low likelihood of default
BBBInvestment GradeMedium grade - medium likelihood of default
BB, BHigh YieldSpeculative - high risk of default
CCC, CC, CHigh YieldHighly speculative - high risk of default
DHigh YieldDefault - unable to pay back debt

Getting to grips with the issuer of a bond and its rating is key to understanding how you can make money from bonds. As with all investments, the greater the risk you take, the greater potential return you could make. Inevitably, this also comes with greater potential for loss.

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Last updated:

July 2016

Updated by:

Michael Trudeau

 

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