What are bond rating agencies and how did they start?

What are bond rating agencies and how did they start?

Bond rating agencies are companies that assess the creditworthiness of issuers of debt securities. They began in the early 20th century, with firms like Moody's and Standard & Poor's providing ratings to help investors evaluate risk.

What was the first bond rating agency?

The first bond rating agency was Moody's, founded by John Moody in 1909. It initially published a manual that rated railroad bonds.

How do these agencies determine ratings?

Agencies analyze various factors, including the issuer's financial health, economic conditions, and industry performance, to assign ratings.

Have there been any controversies involving these agencies?

Yes, there have been controversies, especially during the 2008 financial crisis, where agencies were criticized for their ratings of mortgage-backed securities.

What impact do ratings have on the market?

Ratings influence borrowing costs for issuers and investment decisions for investors, affecting overall market stability.