How safe are AA bonds?
AA+ and Aa1 are assigned by S&P and Moody's, respectively, denoting high-quality investment-grade products. These scores signify the issuer is financially sound, has adequate revenues and cash reserves to pay its debts, and the risk of default is low.
Holding bonds vs. trading bonds
However, you can also buy and sell bonds on the secondary market. After bonds are initially issued, their worth will fluctuate like a stock's would. If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change.
The most reliable (least risky) bonds are rated triple-A (AAA). Highly-rated corporate bonds constitute a reliable source of income for a portfolio. They can help you accumulate money for retirement or save for college or emergency expenses.
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. Obligations rated B are considered speculative and are subject to high credit risk. Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
AAA-rated bonds have a high degree of creditworthiness because their issuers are easily able to meet financial commitments and have the lowest risk of default.
Even if the stock market crashes, you aren't likely to see your bond investments take large hits. However, businesses that have been hard hit by the crash may have a difficult time repaying their bonds.
So, if the bond market declines or crashes, your investment account will likely feel it in some way. This can be especially concerning for investors with portfolios heavily weighted toward bonds, such as those in or near retirement.
For example, with S&P and Fitch, a rating of AA+ is better than AA, and a rating of AA- is worse than AA but better than A+. Moody's uses numbers to indicate relative quality, with Aa1 being the best Aa rating, followed by Aa2 and Aa3.
Given the numerous reasons a company's business can decline, stocks are typically riskier than bonds. However, with that higher risk can come higher returns.
- SPDR® Portfolio Corporate Bond ETF.
- SPDR® Portfolio Interm Term Corp Bd ETF.
- iShares Broad USD Invm Grd Corp Bd ETF.
- Goldman Sachs Acss Invmt Grd Corp Bd ETF.
- iShares 5-10 Year invmt Grd Corp Bd ETF.
- iShares ESG USD Corporate Bond ETF.
- iShares iBoxx $ Invmt Grade Corp Bd ETF.
Is AA a good rating?
Very High Fundamental Credit Quality
'aa' ratings denote very strong prospects for ongoing viability. Fundamental characteristics are very strong and stable, such that it is considered highly unlikely that the financial institution would have to rely on extraordinary support to avoid default.
Investment grade credit ratings include: AAA. AA+ AA.
Bonds with a rating of BBB- (on the Standard & Poor's and Fitch scale) or Baa3 (on Moody's) or better are considered "investment-grade." Bonds with lower ratings are considered "speculative" and often referred to as "high-yield" or "junk" bonds.
Issuer's capacity to pay interest and principal is extremely strong. Bonds rated AA are judged to be of high quality by all standards. They differ from the highest rated (AAA) bonds only in small degree. Issuer's capacity to pay interest and principal is very strong.
The highest-quality bonds are rated Aaa at Moody's and AAA at S&P and Fitch, with the scales declining from there. Moody's ratings of Baa3 and BBB at S&P and Fitch are considered the lowest investment-grade ratings. Ratings below this are considered high-yield or junk.
AA Rated Bonds are High Safety Bonds. AA denotes the bond issuer's credit rating and is assigned by a credit rating agency like CRISIL, CARE, ICRA, etc.
Key central bank rates and bond yields remain high globally and are likely to remain elevated well into 2024 before retreating. Further, the chance of higher policy rates from here is slim; the potential for rates to decline is much higher.
Are bonds a good investment during a recession? Yes, bonds are generally considered a good investment during a recession due to their relative stability and predictable income stream.
After weighing your timeline, tolerance to risk and goals, you'll likely know whether CDs or bonds are right for you. CDs are usually best for investors looking for a safe, shorter-term investment. Bonds are typically longer, higher-risk investments that deliver greater returns and a predictable income.
Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. However, doing so could potentially cost you growth in your portfolio over time.
Why am I losing money in the bond market?
What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.
The main ways to lose money on bonds include price decreases due to interest rate increases, default or bankruptcy of the bond issuer, call risk, reinvestment risk, and inflation risk. Each of these factors can potentially lead to a decrease in the value of your bond investment or a loss of your initial investment.
S&P assigns the AA+ rating, while Moody's bestows the Aa1. This rating indicates that the issuer is financially robust, boasting sufficient revenues and cash reserves to meet its debt obligations. Therefore, the risk of default for investors is minimal, making AA+/Aa1-rated bonds a high-quality, low-risk investment.
Bond ratings are expressed as letters ranging from “AAA”, which is the highest grade, to “D”, which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters and modifiers to differentiate themselves.
What Is Aa2? Aa2 is the third-highest long-term credit rating that ratings agency Moody's assigns to fixed-income securities, like bonds, that are of high quality with very low credit risk.
