The interest rates that investors will demand from a bond are dependant in large part on the credit rating of the issuer. There exist numerous independent agencies rate the credit of companies who issue bonds. Moody’s and the Standard and Poor’s Rating Service are two of the largest bond rating agencies. Poorly ranked companies have to offer higher interest rates to entice investors to buy their bonds. The lower bond ratings are commonly referred to as “junk”. These junk bonds are rather infamous for their high risk. They pay very high interest, and usually have a much shorter maturity time – if the
company is still around to pay the principle back. Investors usually stay away from anything except highly rated bonds – Junk bonds are the realm of speculators. Oftentimes it is a major blow to a company if their bond rating is lowered below the threshold which most serious investors and institutions are willing to invest in [1,2].