HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Standard & Poor's Rating: What It Shows And Why Investors Need It


Credit ratings help investors categorize issuers of stocks, bonds, or entire nations by their level of debt risk. Depending on the level of credit rating assigned, you can understand the level of credit risk. Ratings are issued by rating agencies that have different rating systems. One such agency is Standard & Poor's. Today we will learn more about it, including its importance for investors and traders.

What Is Standard & Poor's Rating?

Standard & Poor's is an international rating agency that analyzes global, national, and corporate financial markets. It is one of the three global rating agencies along with Moody's and Fitch, issuing credit ratings on debt, companies, and countries based on their analysis. In addition, the agency compiled and regularly adjusts its indices of the S&P 500 (U.S.) and S&P 200 (Australia).

The history of Standard & Poor's began in 1941 after the merger of Standard Statistics Co. and Poor's Publishing Co. The agencies themselves were founded even earlier. Poor's Publishing was founded by Henry Poor in 1860 and since then it has been publishing analytics on industries to help European investors determine what to invest in the U.S. market. Today, Standard & Poor's is a subsidiary of publishing conglomerate S&P Global.

Standard & Poor's main activity is assigning credit ratings to companies, states, or individual municipalities. The agency evaluates the creditworthiness of the research object, after which it is given a rating characterizing the degree of risk of default on credit obligations or obligations to investors. The agency may evaluate individual bond issues, such as government or corporate bonds. Thus, the agency Standard & Poor's, putting its ratings, reflects the quality of creditworthiness of the securities issuer. The rating level allows investors to assess the reliability of the issuer in terms of return on invested funds.

Features And Differences Of The Standard & Poor's Rating Scale

Despite external similarities, the Standard & Poor's rating scale has its differences. The grades are denoted in Latin letters, which does not distinguish them from the rating scales of other agencies, from A to D. A grades stand for best creditworthiness. SD means pre-default and D means default. The presence of this grade distinguishes the S&P scale from Moody's, where there is no grade denoting a state of default. In turn, each letter denotes a different level of reliability and has its variations. They are separated by the number of letters from one to three, where three letters, such as AAA, are the highest grade in a given group and one letter is the lowest. A "+" or "-" sign may also be added to the letter designations (except for AAA, SD, and D grades) to show additional differences in the grades of the same group.

Scale scores are divided into three categories: investment grade, speculative grade, and default grade. The investment category includes grades from AAA to BBB-, while the speculative category includes grades from BB+ to C. The SD and D grades are the default category. The investment grade is for assets whose issuers have the highest creditworthiness. These debt instruments are resistant to market turmoil in the long term, but the low risk can reduce the potential return on investment.

The speculative category includes issuers who are currently able to meet their credit obligations but are susceptible to changes in market conditions. Reduced demand, changes in interest rates, or other reasons can affect the ability of issuers in this category to fulfill their credit obligations. Therefore, issuers are very likely not suitable for long-term investment. It is important to know that the grade assigned is not a universal signal for investment. To understand the risk more accurately, it is necessary to look more closely at other issuers and analyze the impact of external factors on them.

As of 2020, only Johnson & Johnson and Microsoft had the highest AAA credit rating. Russian companies Gazprom and Lukoil are rated BBB in 2020. Automotive concern Tesla is rated BB. Standard & Poor's also maintains national rating scales. They do not differ from the basic S&P scale. Companies based in a country cannot have a rating higher than the sovereign rating. Standard & Poor's may also supplement the rating with a forecast of the rating movement: positive outlook, negative outlook, stable outlook, and developing outlook. The differences from other rating scales of Standard & Poor's are minimal. Moody's uses numbers from 1 to 3 instead of "+" or "-", for example, A1, Bb2, and Aaa3. The Fitch scale has three grades in the default category - DDD, DD, and D.

How Standard & Poor's Ratings Are Useful And How To Use Them?

Standard & Poor's ratings are useful not only for investors but also for the issuers themselves and third parties. For investors, a high issuer credit rating can be decisive when choosing assets to invest in. It is also more trustworthy for institutional investors who prefer long-term investments. Ratings are an additional element of an Issuer's analysis. Issuers with high credit ratings allow them to attract funds from investors more effectively. High ratings from the world's leading credit rating agencies can stimulate demand for a company's securities and allow it to set a lower interest rate on debt assets.

Intermediaries and other companies also look at ratings to assess a company's cooperation with it and its ability to pay its debts. A credit rating is not a measure of the profitability of an issuer's securities or an investment recommendation. A credit score refers to the ability to meet debt obligations.

Credit ratings carry weight when selecting fixed-income investment instruments. Municipal bonds can be rated on credit ratings. Also, company bonds are a debt instrument, which allows the ability to pay obligations to be assessed with credit ratings. S&P ratings allow you to compare issuers both nationally and internationally, as well as evaluate their debt obligations. This is a useful element of analysis, but not enough to fully assess investment risks.

Conclusion

Credit ratings allow you to rank stocks and individual bond issues by the level of credit risk. The higher the rating of an issuer or bond issue, the lower the probability of default. In the global financial industry, credit ratings are integral to making important financial decisions in the debt capital market.

Still, keep in mind that a Standard & Poor's debt credit rating is not a recommendation to sell or buy an asset, nor does it express an opinion about the level of its market price or investment appeal. It is an assessment of the risk of default on a debt asset.

#source


RELATED

How to Get into Online Metal Trading with IronFX?

The most popular precious metals in metals trading are gold and silver. The latter is strongly linked to the main currencies and the world economy as a whole. Precious metals have long been...

Trading Like A CFO - Planning

We already went over the similarities between trading and financial management. Now we are going to get a little deeper into each...

Where will the COVID-19 pandemic lead the United States?

Last week, US government debt set a new historical maximum. The milestone of $25 trillion was taken. The situation deteriorated sharply in April 2020 due...

What is spot trading in crypto?

Thanks to the volatility of the crypto markets, savvy traders are enjoying speculating on their price movements in hopes of finding positive trading opportunities...

What Is Fibonacci Retracement? Definition & How To Use It

Setting the support and resistance levels is usually a problem for traders. It is especially inconvenient when trying to figure out from the beginning where to place them on the chart...

How to trade cryptocurrencies

Cryptocurrency trading has become highly popular over the past year. The crypto market has grown tremendously, with global market capitalisation reaching a trillion-dollar valuation.

Interest rates: why do they matter so much?

There is nothing new about it. You’ve heard about it. We’ve heard about it. The Federal Reserve, the European Central Bank, the Bank of England, the Bank...

Rules Followed by Professional Traders: How to Make Money Every Day?

How do professional traders spot great trading opportunities in the financial market almost every day? Which key traits separate experienced traders from beginners?

Why you need a forex trading plan

A forex trading plan is a comprehensive strategy that outlines the trader’s approach to trading the forex market. It covers all aspects of trading, including the trader’s goals...

How to Trade Cryptocurrency Like a Boss

In 2009, bitcoin was relatively worthless, and as such, nobody was interested in knowing how to trade bitcoin. But a decade down memory lane, cryptocurrency is...

Understanding What Crypto Trading is All About

The idea of Bitcoin and other cryptocurrencies feels like it has only just been created, but the first instance we see of these digital assets came out around 11 years ago...

Olymp Trade: What a Crypto Investor Needs to Know in 2022

The year 2021 was a tremendous success for the cryptocurrency market. Bitcoin hit an all-time high as did nearly all altcoins. However, 2022 started with a big price drop...

Ethereum trading in 2020: step-by-step guide

The Ethereum cryptocurrency is an open software platform based on blockchain technology that allows developers to create and release decentralized applications...

Maximizing Returns with USDT Staking: A Comprehensive Guide

In the dynamic world of cryptocurrency, staking has emerged as a popular way to earn passive income. Among the various digital currencies available for staking...

STEPN: Libertex explains what you need to know about the "move-to-earn" crypto trend

STEPN (GMT) is a so-called "move-to-earn" crypto token that was launched back in the summer of 2021. However, the price of STEPN has recently picked up...

Trading on the news: Pros and Cons

Most often, the most significant changes in the Forex market occur after the financial, economic and political news and the reaction of the market to them...

Markets.com: Thousands of markets to trade

With Markets.com you can trade every market twist, turn and trend with a vast range of assets, including our thematic Blends, weighted baskets of stocks focused...

Choosing a Trading Instrument: How to Trade Indices

By now, you must be familiar with the names of the world's major stock indices: Dow Jones, S&P 500, NASDAQ, DAX30... But did you know that they can...

Mastering Oil Trading: Comprehensive Strategies and Crucial Aspects

The world of oil trading offers a plethora of opportunities for savvy traders, but it also presents unique challenges. Understanding the nuances of trading in Brent Crude and West Texas Intermediate (WTI)...

Telcoin: The Future of the Dark Horse of Cryptos

The cryptocurrency world famously has its ups and downs, and May 19 was not a good day. However, investors remain optimistic. Most cryptocurrencies already bounced...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.