Moody's and Standard & Poor's (commonly known as S&P) are debt rating agencies. They give opinions on how safe different bonds are for investment. The rating is essentially a credit score for a bond. The highest rating is AAA, which means that a bond issuer is extremely likely to pay back the investor's money. This information can be useful when building an investment portfolio. Both Moody's and S&P use their own rating symbols, but they are very similar and easy to compare.
Make a list of the different companies or bonds you would like to compare, and include the rating given by both Moody's and S&P. You can find ratings from both agencies on their respective websites, although both require a free registration. You can also find bond ratings on market analysis pages, such as the Wall Street Journal Market Data Center, which includes ratings from Moody's, S&P and Fitch (another rating agency) in its information for individual companies (see References).
Refer to a comparison chart to see the different types of ratings for both Moody's and S&P (see Resources).
Generally, S&P and Moody's follow a very similar format. Both begin with AAA (the highest rating) and progress down to C (Moody's) or D (S&P), meaning the bonds are or may be in default. For more specific ratings, S&P uses + and - signs, while Moody's uses 1, 2, and 3. Moody's also only capitalises the first letter. For example, an Aa1 from Moody's would be equivalent to an AA+ from S&P, and an Aa3 from Moody's would be equivalent to an AA- from S&P.
Moody's uses lower case a's after the main rating letter (even if it is B or C) rather than repeating the rating letter the way S&P does. So a Baa from Moody's is equivalent to a BBB in S&P, and a Ba1 from Moody's is equivalent to a BB+ from S&P.
Look for any ratings that don't match each other on the comparison chart. Make sure to research any discrepancy between the ratings given by the two rating agencies, because it could mean that current events are affecting the bond's rating somehow, which could be an indicator of more changes to come.
Use the most current ratings you can find. Ratings can change rapidly with the news, so make sure you're not relying on old data.
Tips and warnings
- Use the most current ratings you can find. Ratings can change rapidly with the news, so make sure you're not relying on old data.