Credit Rating

Credit rating is one of the most important reference points for fixed income instruments. A rating can help inform the investor about the probability of default of the issuer and therefore the soundness of the investment. Below we highlight the main credit agencies behind credit ratings and the resulting categories of fixed income instruments.

3 Credit agencies that determine credit ratings

Three main agencies are responsible for 95% of companies’ credit ratings: Standard and Poor’s, Moody’s, and Fitch Ratings. They all have different credit rating taxonomy but can easily be matched. “Well-rated” companies are called investment grade companies. They are safe and sound companies unlikely to default. “Lower-rated” companies are called high-yield companies in reference to the higher interest rate paid to investors to compensate for the higher risk of default.

Fixed Income Instrument Categories

Trackinsight’s classification divides fixed income instruments into three categories: Investment Grade, High Yield, and Multiple Ratings.

1. Investment Grade

 Investment Grade instruments are rated BBB or above based on S&P standards. 

2. High Yield

High Yield instruments are rated BBB- or below based on S&P standards.

3. Multiple ratings

This category groups funds that include both Investment Grade and High Yield securities.