Bond Ratings

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Chapters in this video

  1. 0:00 The investment grade VIP club setup
  2. 0:45 The Big Three agencies and their scales
  3. 2:16 The BBB-/Baa3 velvet rope line
  4. 3:38 What ratings measure versus what they don't
  5. 4:55 Rating changes and the fallen angel
  6. 6:14 Rapid-fire exam recap

What this video covers

  • The three major credit rating agencies (Standard and Poor's (S&P), Moody's, and Fitch), and how their rating scales line up
  • Why S&P and Fitch use plus/minus modifiers while Moody's uses 1, 2, 3, and the fake-rating traps the exam loves
  • The exact BBB-/Baa3 dividing line between investment grade and speculative grade (junk) bonds, and why one notch matters so much
  • What bond ratings actually measure (default risk and issuer creditworthiness) versus what they do NOT measure (interest rate risk, liquidity risk, market risk, reinvestment risk)
  • Why a 30-year AAA bond still carries significant interest rate risk despite minimal credit risk
  • The inverse relationship between rating changes and bond prices: upgrades push price up and yield down, downgrades do the opposite
  • What a fallen angel is, why institutional investors are forced to sell, and why the price drop overshoots the credit deterioration itself

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Read the Free Lesson → free · no signup wall