bond rating

A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its the ability to pay a bond's principal and interest in a timely fashion.

Investopedia Says:
Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("Junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves.

To illustrate the bond ratings and their meaning, we'll use the Standard & Poor's format:

AAA and AA: High credit-quality investment grade
AA and BBB: Medium credit-quality investment grade
BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk bonds"
D: Bonds in default for non-payment of principal and/or interest

Related Links:
For investors considering buying debt securities, a credit rating is an essential tool. What Is A Corporate Credit Rating?
Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy. Corporate Bonds: An Introduction To Credit Risk
Don't be fooled by the name - junk bonds may be for you if you know how to analyze them. Junk Bonds: Everything You Need to Know
Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration. Advanced Bond Concepts
Investing in bonds - What are they, and do they belong in your portfolio? Bond Basics Tutorial

Evaluation by rating company of the probability that a particular bond issue will default. Bonds are rated by Standard & Poor's Moody's Investors Service, Fitch Investor's Service, and Duff & Phelps and are given bond ratings from AAA (least likely to default) to D (default). Bonds rated BBB by Standard & Poor's (Baa by Moody's) or better are rated Bank Quality bonds or investment grade bonds suitable for purchase by commercial banks, fiduciaries, mutual savings banks, trust companies, and insurance companies. Bonds given lower ratings are considered speculative investments.

Calculations of the probability that a bond issue will go into default. They measure risk, and therefore have an impact on the interest rate. Bond investors tend to place more emphasis on independent analysis of quality than do common stock investors. Bond analysis and ratings are done by Standard & Poor and Moody's among other rating agencies.