Bond Rating

A bond rating is an evaluation of credit worthiness for a fixed-income investment. Higher-rated bonds are the most likely to fulfill obligations whereas lower-rated bonds are much less likely.

Higher-rated bonds are considered the least risky, as issuers are the mostly likely to fulfill their obligations. This means the return prospects are lower for high-quality bonds because the creditor isn’t assuming much risk. Lower-rated bonds (also know as junk or high-yield bonds) are less likely to pay back their debt, so creditors receive higher payouts for taking on much more risk.