Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue.

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Bond ratings provide an assessment of the issuer's ability to pay back the principal and interest on time, based on factors such as financial stability, creditworthiness, and other relevant criteria. The rating agencies assign letter grades or symbols to demonstrate the level of creditworthiness, where a higher rating corresponds to a lower risk of default.

Bond Ratings Use a Classification System to Give Investors an Idea