GlossaryCredit rating breakdownRating allocationAverage credit rating

Credit quality

Credit quality describes the creditworthiness of the bonds a fund holds, shown as a breakdown by rating bucket from AAA down to below BBB or as an average rating.

Definition

Credit quality measures how likely the issuers of a bond fund's holdings are to pay interest and principal on time. It is expressed with letter ratings from the major rating agencies: AAA is the strongest, then AA, A and BBB, which together make up investment grade. BB, B, CCC and below are high yield (sub-investment grade). Fund houses publish a table of portfolio weight per rating bucket and often an average rating for the whole portfolio.

Why it matters

Lower credit quality generally means higher yield and higher default risk, and a larger fall in stressed markets. Two funds with the same duration and yield to maturity can behave very differently if one holds government bonds and the other high yield. Mandates frequently set minimum credit quality limits, which look-through analysis needs to check.

In the API

The breakdown is in creditQuality and a summary label in profile.creditQuality. Example values:

json
{
  "profile": { "creditQuality": "investment-grade" },
  "creditQuality": [
    { "label": "AAA", "weight": 12.5 },
    { "label": "A", "weight": 34.1 },
    { "label": "BBB", "weight": 41.0 },
    { "label": "Not rated", "weight": 2.3 }
  ]
}

Common pitfalls

When agencies disagree, fund houses apply a rule such as the lowest, the middle or the highest of the available ratings, and it is not always the same rule. Averages are computed on a numeric scale and can mask a barbell of AAA and CCC holdings. "Not rated" is not the same as low quality; it often includes cash and unrated but sound issuers.