Investment Grade

Investment Grade

By: www.CandleStickForums.com

http://www.candlestickforums.com/

Just what does investment grade mean? The term refers

to bonds. Bond rating agencies, Standard and

Poor’s, Moody’s, Fitch and DBRS rate the credit

worthiness of borrowers.



Each has a cutoff below which an investment

(corporate bond, municipal bond, country’s credit rating, etc.) is considered too risky

for safe investment.



In general bonds that are investment grade are OK for

bond investing by banks. Investment grade to Standard and Poor’s and Fitch is BBB- and above. To Moody’s it is

Baa3 and above.



To DBRS it is BBB and above. Investors and traders use high grade bonds to lower

investment risk. A low credit rating will require that a

company or country pay a higher rate of interest than a company or country with an

investment grade rating.By: www.CandleStickForums.com


When the investor decides to buy bonds he or she will

decide whether to invest in a low risk bond at a lower rate of interest or a so called junk bond offering a higher rate of

return on investment.



Stocks and bonds are similar in that market volatility will

affect both. Traders engaging in bond trading will often opt

for higher risk bonds with more volatile interest rates. As the interest rate varies so

does the bond price.



Determination whether of not the investment risk of a bond is investment grade or not is

a laborious process that considers all factors that will

determine if a borrower might default on payment.



In long term investing it is often the case that the investor will opt for the

highest grade in order to protect investment capital. Learning to invest in bonds starts with understanding

credit ratings.



Investment grade bonds are typically found in a

conservative investment portfolio. High yield bonds with less than investment grade ratings are more

typically the tool of short term trading.



A bond is issued at a given interest rate determined by

the market. When the prevailing interest rate goes up the value of the bond goes down. When interest rates go down the value of the bond

goes up.



A trading strategy for bonds might be to purchase bonds

in anticipation of a fall in interest rates. The trader will not hold the bonds long term

but sell for a profit based upon fundamental and

technical analysis of interest rates.



Although a long term investor in bonds may not buy and sell bonds as frequently as a day

trader he or she will often use both fundamental analysis and technical analysis to

determine when the optimal time will be to sell a set of bonds in a market of slowly

dropping interest rates.By: www.CandleStickForums.com


This was a very profitable strategy for many during the

1980’s as rates slowly but surely dropped over the

decade.



The use of Candlestick chart analysis can be useful in

following interest rates and bond rating prospects just as

it is for trading stocks, trading options, or trading

commodities.



In using Candlestick charts the trader will be able to

track interest rates but also the company which has

issued bonds.



Not only will prevailing interest rates affect the price

of a bond but a recovering company that borrowed

money may benefit from a movement back to investment

grade and find its bonds selling at a higher price.



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Investment Grade