In the previous article, Niuniu really told you that "investing in bonds is risky and be careful about it." did it pour cold water on you who are eager to try? Many investors are deterred by all kinds of risks, among which the most confusing one is credit risk. "is it easy for me to buy some debt?" Swallow my interest and try to cheat me out of principal. "

Don't panic! In fact, credit risk is a weak "fighting ability" in the whole risk family. If you do a "enemy situation analysis" in advance, you can evaluate and defend against "bad gold devouring monsters" in advance. The credit rating system is the most straightforward and efficient tool for "enemy situation analysis".

01 "enemy analyst" popular science: credit rating agencies

Bond credit rating is a measure of the probability of bond default risk. To put it bluntly, it ranks the ability of different companies in the bond market to repay debts and withstand various financial and economic pressures.

Credit rating agencies are important service intermediaries in the financial market, with a team of special economic, legal and financial experts, with a certain degree of professionalism and fairness. For the vast majority of investors who lack energy and expertise, the bond market is full of all kinds of deception. If they are not careful, they will be fooled by the "bad gold devouring monster" under the cloak of "steady profit". In the end, they will lose their money. At this time, the credit rating agency acting as the "enemy analyst" plays the role of identifying the "friend-foe relationship" in advance, using its professional quantitative and qualitative analysis to give a forward-looking opinion on a company's ability and willingness to repay interest and principal on time. Based on the credit ratings disclosed by the rating agencies, investors can pre-assess how likely the money is to return to their pockets.

You must have heard of the three most authoritative and influential "enemy analysts" in the international bond market, namely, Moody's Corporation Investment Services (Moody's), Standard & Poor's (S & P) and Fitch International Credit rating Co., Ltd. (Fitch Group). They are the first batch of rating agencies to be recognized as NRSROs (nationally recognized statistical rating organization) and have been authenticated by the American securities industry. Since then, the "Big three" have begun to dominate the international rating industry.

Each credit rating agency has its own set of complex and professional models to evaluate the credibility of enterprises, including considering the size of enterprises, business product diversification, financial indicators and other factors, using a combination of quantitative and qualitative analysis methods. This comprehensive credit evaluation, coupled with long-term tracking records and strict monitoring, ensures the accuracy of rating agencies' evaluation.

02 Declassification of Strategic guidance: credit rating system and grading

Almost all credit rating agencies use the letters A to D to represent the company's credit rating. This seemingly simple symbol system actually hides the "strategic guidance" of the "enemy analyst" to the market. Niuniu will then take you to decipher the information behind the symbol.

The division of the Big three is more or less the same, mainly divided into long-term bond rating and short-term bond rating, the establishment of N standards to evaluate the solvency of bond issuers, and finally to assess credit risk.

Take Moody's Corporation's long-term credit rating as an example, with a total of 21 grades, of which the highest credit rating is Aaa and the lowest is C. after each grade from Aa to Caa, the credit level is further subdivided by the number 123,1 indicates that the solvency of the bond is in the upper level in the same rating category, 2 represents the middle, 3 represents the lower ranking, such fine-tuning can make the rating results more refined. Avoid overgeneralization of rating results.

And Moody's Corporation took Baa as a watershed and classified the degree of credit as investment grade and speculative grade. From Aaa to Baa level isInvestment gradeThese bonds are highly creditworthy and have little risk of default, in which Aaa-rated bonds are considered to be "very safe" investments, while Baa-rated bonds are "not very protected, but not too low". Bonds rated Ba or below are usually calledSpeculative bondTo put it better, it is called "high-yield debt", but it is also nicknamed "junk debt". This kind of bonds are considered to be highly speculative and have a high risk of default, but they often attract groups of investors because of their high yields.

This professional and easy-to-understand credit rating system provides "strategic guidance" to investors, helps rookies to distinguish between "money-recruiting beasts" and "gold-swallowing monsters", and carries out the first round of risk testing in the investment process.

03 Superstition in "strategic guidance"? Beware of Waterloo!

Although the "strategic guidance" provided by "enemy analysts" is indeed a useful "friend and foe" screening tool, credit rating can only play a limited role in investment decisions, and blind superstition will accidentally lead investors into the "gap".

First, credit ratings are only a reference to the risk of default, not advice to buy, sell or hold. The main purpose of the rating agency is to tell you about the ability of an entity to meet its debt obligations.

Secondly, credit rating also has different reference significance for different types of investors. It's like inInvestment astrologyThere are great differences in the ability of different types of investors to bear risks. If you are a conservative and pragmatic investor and keep everything in line with low risk, then bonds above An are the first choice, but if you are a "earn one day and risk one day" investor, you may want to try to allocate some high-yielding B-rated bonds. Ratings do not tell investors which bonds are more suitable for their investment preferences.

Finally, these top rating agencies have been criticized in recent years because of the frequent occurrence of untrustworthiness. In the information explosion market, some professional investors tend to rely on the rating results of rating agencies, which makes the rating market expand rapidly. Fairness and authority are questioned by investors.

So, it's impossible to think without thinking and make money, unless--

After preliminary investigation, fund managers make decisions according to investor demand and market changes on the basis of the judgment made by credit rating agencies, which is simply "nanny-level service"....

Conclusion

As an important member of the bond risk family, credit risk can actually be avoided in advance. Like "enemy analysts" giving "strategic guidance" in advance, credit rating agencies have developed a simple symbolic system to indicate risk levels. However, blindly relying on credit rating will also bring certain risks. To invest in bonds, we still need to think more rationally. Want to make money without thinking? I'm not buying a debt base.

To understand the investment of bond funds, come to the series of "playing the bond market". The articles are full of practical information.