glossary | Market Rating
Market Rating
The bond's return, or yield, is compared to the yield of a treasury bond with the same maturity. Treasury bonds are considered risk-free because they are backed by the U.S. government. If there is a large difference (spread) between a bond's yield and a similar treasury bond's yield, it means the market sees that bond as riskier. In other words, a higher yield is needed to make up for the higher risk of default.
Bonds are rated from five stars (best) to none. Bonds with smaller spreads (less risk) get more stars, while those with larger spreads (more risk) get fewer stars. These ratings are updated often to reflect current market conditions.
The graphic below shows different credit ratings. These are general descriptions and are not specific recommendations for investors.
| Market Rating | Explanation |
|---|---|
| Treasury Bonds | Considered risk free. Backed by the full faith and credit of the U.S. Government |
| 5 Stars | Best quality and stable borrowers. |
| 4 Stars | Also high quality borrowers, with slightly more risk than 5 star borrowers. |
| 3 Stars | More sensitive to changes in the economy that can affect price and yield. |
| 2 Stars | Increasing economic volatility can lead to even wider swings in price and yield. |
| 1 Star | Borrowers are vulnerable to changes in the economy which can impact ability to meet commitments. |
| 0 Stars | Very vulnerable to changes in the economy and considered speculative. |
Red - Bond has a yield in the lowest tiers of its Equivalency Class. Other factors being equal, you should consider choosing other bonds with higher yield (ie, higher star rating).
More Information
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Research has shown that bond ratings using actual trade data are more accurate than those based only on company research.
A bond’s rating should reflect its risk and potential return. This is exactly how the MuniBonds.AI Market Implied Rating is calculated. Here, the risk refers to the risk of the issuer defaulting, not the interest rate risk, which is managed by duration.
The number of stars a bond gets relates to its default risk. Default risk is the chance that the bond issuer won't make a coupon payment or repay the principal. More stars mean lower (better) default risk. This is calculated by comparing the bond's return, or yield, to the yield of a similar treasury bond. Treasury bonds are considered risk-free because they are backed by the U.S. government. If there's a big difference (spread) between a bond's yield and a similar treasury bond's yield, it means the market sees that bond as riskier. In other words, a higher yield is needed to make up for the higher default risk.
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Market Rating
Bonds rated from five stars (best) to none. Bonds with lower spreads (less risk) are given more stars than bonds with higher spreads (more risk). Ratings are calculated frequently to ensure they reflect the most current market factors.
Liquidity Rating
Bonds rated from five to none. Computed daily as a ratio based on the number of trades in a given bond compared to the average number of trades of all the bonds in a similar class. The higher the ratio, the more frequently the bond is traded relative to similar bonds.
Fitch Ratings
The Primary Credit Rating Scales (those featuring the symbols 'AAA'–'D' ) are used for debt and financial strength ratings.
Moody’s Ratings
Municipal ratings incorporate Moodyʼs assessment of the default probability and loss severity of these issuers and issues.
Standard & Poor’s Ratings
Curious as to what a ʻAAAʼ or ʻBBʼ rating on a bond actually means? View detailed descriptions of what constitutes each of S&P's ratings here.