How risky are Corporate Bonds rated A?
April 26, 2009 by How Savings Bonds Work
Filed under More Bonds Answers
Can you answer Robert R’s question about Bonds?:
How risky are corporate bonds with an A rating? (As opposed to AAA and AA).
How risky are corporate bonds with an A rating? (As opposed to AAA and AA).
What are the typical chances that an A rated bond will default?
Tax Free Municipal Bonds
Bonds Feedback: Anything rated higher than BBB is relatively safe.
Bonds Feedback: all corp bonds have risk but with that is reward. You have to weigh that out as many A vrs AAA why do you think moodys has rated them low? it is all about the risk. Do your duedilligence so that you can make an informed investment descision
Bonds Feedback: There are very very few corporate bonds rated AAA or even AA. Any bond rated BBB or better is considered investment grade–not speculative. The main problem with the ratings on bonds is that you can not really rely on them as being correct. There have been more than just a few cases in the past where bonds rated AAA have gone bankrupt. The agencies once they rate a bond are slower than molasses in January to change their ratings even though the company is spiraling down the black hole of oblivion.
For instance Bank America debt is still rated AA but there is not a bond buyer on the street that believes that. The interest rates being quotes on their bonds are much closer to junk interest rates. Whereas Walmart bonds which are rated the same are currently trading at a much lower interest rate, about 4.2% vs about 6.2% for BAC.
And for crying out loud, Lehman Brothers paper is rated A as is Merrill Lynch paper but the yields yell low grade junk. 7+%. Whereas John Deere rated the same is yielding only 4.4%.
Not too long ago GM and Ford paper was rated investment grade even though the two companies were loosing billions. Not any more.
Bonds Feedback: The chances an A-rated bond will default are small.
There are few AAA-rated bonds in the market.
BBB is lowest “investment grade”.
Realize however that an A-rated bond today can be a CCC tomorrow. If you have individual bond holdings you need to watch for rating downgrades and sometime that doesn’t even help. Remember Enron? Enron’s bonds were investment grade and the agencies assured the world that the risk was “good”. Within weeks, Enron’s bonds were downgraded to junk and the company soon went bankrupt.