In Practice Ratings Changes and Interest Rates

The rating assigned to a company can change at the discretion of the ratings agency. The change is usually triggered by a change in a firm's operating health, a new security issue by the firm or by new borrowing. Other things remaining equal, ratings will drop if the operating performance deteriorates or if the firm borrows substantially more and improve if it reports better earnings or if it raises new equity. In either case, though, the ratings agency is reacting to news that the rest of the market also receives. In fact, ratings agencies deliberate before making ratings changes, often putting a firm on a credit watch list before changing its ratings. Since markets can react instantaneously, it should come as no surprise that bond prices often decline before a ratings drop and increase before a ratings increase. In fact, studies indicate that much of the bond price reaction to deteriorating credit quality precedes a ratings drop.

This does not mean that there is no information in a ratings change. When ratings are changed, the market still reacts but the reactions tend to be small. The biggest service provided by ratings agencies may be in providing a measure of default risk that is comparable across hundreds of rated firms, thus allowing bond investors a simple way of categorizing their potential investments.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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