What are "credit ratings" significant for?

Credit ratings are significant for determining the likelihood of bond default. These ratings, assigned by credit rating agencies, provide investors with insights into the creditworthiness of issuers of bonds, such as corporations or governments. A higher credit rating indicates a lower likelihood of default, meaning the issuer is more likely to be able to meet its debt obligations. Conversely, a lower credit rating suggests a higher risk of default, which can affect the pricing and yield of the bonds in the market.

Understanding credit ratings helps investors make informed decisions about the risks associated with certain fixed-income securities, as they represent the issuer's ability and willingness to repay its debt. This knowledge is essential for managing investment portfolios and assessing the overall risk levels associated with bond investments.