Bond Funds primarily invest in bonds and other debt instruments. The types of debt these funds invest in include government, corporate, municipal and convertible bonds, along with other debt securities like mortgage-backed securities.
In general, these types of funds, along with bonds themselves, are considered to be lower risk because they produce a predictable cash flow. Fund managers aim to choose bonds that will deliver a better-than-average return, but without a significant increase in risk.
However, bond funds are subject to credit risk, reinvestment risk and interest rate risk, which could all lead to the fund losing money or underperforming the market.
Formerly known as "Bond Fund Ratings", Standard & Poor's fund credit quality ratings are assigned to various fixed-income funds or portfolios with fluctuating or variable net asset values.
Fund credit quality ratings are identified by the subscript 'f' for fund, and represent Standard & Poor's assessment of the overall credit quality of a fund's portfolio holdings. A fund credit quality rating reflects the level of protection that the fund's portfolio provides against losses from credit defaults.
Rating categories range from 'AAAf' (highest protection against losses from credit defaults) to 'CCCf' (extremely vulnerable to losses from credit defaults). Fund credit quality are partly based on an assessment of a fund's current credit exposure, based on a credit matrix score taken from Standard & Poor's historical default and ratings transition rates, and on the manager's credit management process.
Reports are available to subscribers of Standard & Poor's subscription website.
