RATING

OF BOND
SUBMITTED BY

M.Farzan
Misbah GHAFFAR
Hassan Sarfaraz
M.Fateh
M.Zain
SLIDESMANIA

Submitted to
Sir Sohail Saeed
 Credit Rating
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Bonds are rated by credit rating agencies like Moody's, Standard
& Poor's, and Fitch. These agencies assess the creditworthiness
of the issuer and assign a rating based on factors like financial
stability, economic conditions, and repayment history.

Major bond categories:

 supranational agencies
 national governments
 provincial or state governments
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 municipal governments
 corporate bonds
 On which basis they give credit rating?
By Financial indicators which include financial statements, cash flow analysis, debt ratios,
profitability measurements, and liquidity measures.

 Each rating agency (such as Standard & Poor’s, Moody’s, and Fitch Ratings) uses a
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unique letter-based rating system.

 These ratings quickly convey to investors whether a bond carries low or high default risk
and whether the issuer is financially stable.
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Rating SCALE
OF BONDS
Bond ratings are essential for assessing the creditworthiness of bonds. They provide
investors with insights into the risk associated with different debt instruments.
Grade on bond indicates credit quality (Affects interest rate applied to bond)
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 Rating Given by Agencies

Standard & Poor’s

(S&P) and Fitch Ratings: Moody’s Ratings:
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• AAA: Highest quality, • Aaa: Highest quality,
minimal risk. minimal risk.

• AA: High quality, very • Aa: High quality, very low

low credit risk. credit risk.

• A: Upper medium- • A: Upper medium-grade,

grade, low credit risk. low credit risk.
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• BBB: Medium-grade, • Baa: Medium-grade,

moderate credit risk. moderate credit risk.
 Junk Bond

Standard & Poor’s (S&P) and Fitch Ratings:

Moody’s Ratings:
BB: Speculative, substantial credit risk.
• Ba: Speculative,
B: Highly speculative, high credit risk. substantial credit risk.

CCC: Poor standing, very high credit • B: Highly speculative,

risk. high credit risk.

CC: Near default, some recovery • Caa: Poor standing, very

prospects. high credit risk.

C: Lowest-rated, typically in default. • Ca: Near default, some

recovery prospects.
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• C: Lowest-rated,
typically in default.
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Investment Grade and Non Investment
Grade
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 Investment Grade
Definition: Bonds with a credit rating of BBB- or higher (Standard & Poor's) or Baa3
or higher (Moody’s)
Characteristics:
 Lower risk | Higher credit quality
 Lower likelihood of default
 Lower yield compared to non-investment grade bonds
Examples:•
 Government bonds
 High-quality corporate bonds
 Municipal bonds
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Non-Investment Grade (High-
Yield or Junk Bonds):
Definition: Bonds with a credit rating below BBB- (Standard & Poor's) or below
Baa3 (Moody's)

Characteristics:
 Higher risk
 Lower credit quality
 Higher likelihood of default
 Higher yield compared to investment grade bonds

Examples:• Bonds issued by companies with lower credit ratings

• Speculative-grade bonds
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 Market Perception
On bonds
Bond ratings also influence market perception and investor confidence. A
higher rating can attract more investors and lower borrowing costs for the
issuer, while a lower rating may lead to limited demand and higher borrowing
costs
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 Bond ratings have a significant impact on market perception
and investor confidence.

A higher rating can:-

 Enhance investor appeal
 Boost investor trust
 Reduce borrowing costs for the issuer

On the other hand, a lower rating may:-

 Limit investor interest
 Erode investor confidence
 Increase borrowing costs for the issuer
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 Impact on Yield
On Bond
Bond yields are significantly influenced by various factors, including monetary
policy and interest rates.
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 Elements impact bond yields:
1. Inverse Relationship with Bond Prices:

 Bond yields and bond prices share an inverse relationship.

 As bond prices increase, bond yields fall, and vice versa.

2. Effect of Falling Interest Rates:

 When interest rates fall, existing bond prices tend to rise.

 Bondholders benefit from capital appreciation as the market price of their bonds
increases.

 However, the coupon rate (annual interest payment) remains constant.

3. Rising Interest Rates Impact:
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 When interest rates rise, existing bond prices tend to fall.

 Bondholders may experience capital losses due to declining market prices.

 Market Yield Summary

In summary, bond yields are closely tied to interest rate

movements. Falling rates lead to rising bond prices and lower
yields, while rising rates result in falling bond prices and
higher yields
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 Summary
1. Investor Guidance:
1. Ratings alert investors to the quality and stability of a bond.
2. They help investors make informed decisions based on risk tolerance.
2. Interest Rates and Pricing:
1. Higher-rated bonds (investment-grade) carry lower interest rates due to lower risk.
2. Bond prices are influenced by these ratings.

3.Risk Assessment:

1. Ratings reflect creditworthiness and the issuer’s ability to repay.

2. Junk bonds (lower-rated) offer higher yields but come with more risk.

In summary, bond ratings impact investor confidence, pricing, and overall market dynamics
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 YOU
THANK
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