Bond Markets: Bond ratings
Bonds with longer maturities and low coupon rates experience larger price changes for a given
change in interest rates than bonds with short maturities and high coupon rates.
Bonds with longer maturities and lower coupon rates are subject to greater interest rate risk.
Bond investors also need to measure the degree of default risk on bond. Large bond investors,
traders and managers often evaluate default risk by conducting their own analysis of the issuer,
including an assessment of bond issuer’s financial ratios and security prices. Small investors are
not generally capable of generating the same extensive information and thus frequently rely on
bond ratings provided by the bond rating agencies.
Securities Markets
Junk bond
Also called high- yield bond. Bond rated as speculative or less than investment grade by bond-
rating agencies. A bond downgraded from investment-grade status to junk bond status is called
a “fallen angel.”
Bond Market Indexes
The indexes are those managed by investment banks and reflect both monthly capital gain and
loss on bonds in the index plus any interest income earned.
BOND MARKET PARTICIPANTS
Bond markets bring together suppliers and demanders of long-term fund. The major purchasers
of capital market securities are households, businesses, government units and foreign
investors.
