Credit ratings are a measurement of the repayment capacity of the issuer of the bond. The rating agencies such as the Standard & Poor, Moody, and Fitch give ratings of bonds depending on the financial status of the issuer. Investment-grade bonds are of BBB- rating or above meaning that they are less risky whereas bonds rated lower than that (junk or high-yield bonds) are riskier to default. The higher rating, the lower the interest rate being charged on the issuer because the investors are assured of repayment. To investors, the knowledge of the credit rating of a bond assists them to determine the risk and anticipated returns and hence they make decisions regarding investing in a particular bond.

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