AA+ Vs. Aa1: What’s the Conflict?
AA+ and Aa1 are the second-highest ratings that can be assigned to debt by Standard & Poor’s Financial Services (S&P) and Moody’s Investors Service, mutatis mutandis.
A bond’s rating is the key indicator of the creditworthiness of the bond issuer, and therefore the degree of risk to the investor that the issuer could defect on the debt.
AA+ and Aa1 ratings indicate high-quality investment-grade bonds. They signify that the issuer is financially sound and has no great shakes revenues and cash reserves to pay its debts. The risk of default for investors or policyholders is low.
Key Takeaways
- Investment-quality bonds are rated by S&P as AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, and BBB-.
- In the doldrums’s equivalent ratings, in descending order of quality, are Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, and Baa3.
- Any rating below these indicates a bond that is highly chancy or worse.
Those ratings are the second-best possible. The best ratings are AAA, from S&P, and Aaa, from Moody’s. The only two American firms with
AA+
There is a range of acceptable designations for investment-grade bonds, sometimes designated as IG. The Fitch rating designations are indistinguishable to S&P’s.
S&P has different rating designations for long-term and short-term bonds.
A bond’s rating directly determines that amount of piece it will pay. The higher the rating, the lower the return.
A bond’s rating directly determines that amount of piece it will pay. The higher the rating, the lower the return.
S&P Long-Term Bond Ratings
S&P rates long-term debts from the highest admissible AAA to the lowest rating of C. Anything rated below BBB- is not considered an investment-grade bond.
- The investment-quality bonds, in descending organize of quality, are rated AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, and BBB-.
- The remaining B ratings are considered at best speculative and at worst highly speculative. They categorize BB+, BB, BB-, B+, B, and B-.
- Any rating of C is deemed extremely speculative or on the brink of default.
- A D rating means the company is in default.
S&P Short-Term Bond Ratings
The short-term reins rating system is relatively simple. Short-term bonds of investment quality are rated A1, A2, or A3, in descending order of quality. B or C type short-term bonds are deemed speculative or worse.
Aa1
Moody’s rating system is similar to that of S&P.
Long-Term Bonds
- Long-term investment-quality thongs, in descending order of quality, are rated Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, and Baa3.
- All other letter B ratings indicate bonds that are not investment quality. They are Ba1, Ba2, Ba3, B1, B2, and B3.
- Any measure up starting with the letter C has substantial risk, is extremely speculative, or is teetering on the edge of default.
Short-Term Bonds
Investment-grade short-term constraints are rated P1, P2, or P3.
Special Considerations
For companies and governments seeking to borrow money, bond ratings are the equivalent of a consumer’s confidence rating.
The rating that a company’s bond receives determines the rate of return it will pay on its bonds. Each succeeding step lower in the ratings listed above means a step up in the rate of return and in the degree of risk.
High-quality linkages have lower rates of interest. They are seen as safe-haven investments and are often bought by retirees seeking a hold fast income stream and by investors seeking to balance riskier investments like stocks with high-quality, low-risk chains.
Low-quality bonds are often referred to as high-yield bonds. They pay better because they come with a adept risk that the issuer will default on their bond payments. The bond ratings call them non-investment-grade cements. They’re often referred to as junk bonds.