As a result, investors will pay more for bonds issued by an agency with an impeccable credit rating. Investors will pay less for a similar bond if a corporation with a low credit rating issues it. The final characteristic of bonds is bond ratings. They rate bonds on a number of factors, including the financial health of the issuer, the ability to make the future coupon and par value payments, and the issuer's past credit history. They are rated on a scale, which ranges from AAA, the highest investment grade, to D, for default.
Corporate bonds are an important source of corporate funding.
Investors usually decide on the highest level of risk they are willing to accept, and then try to find a bond that has the best current yield. These bonds carry a high rate of return as compensation for the possibility of default. Investors usually purchase corporate bonds as long-term investments. Municipal Bonds are bonds issued by state and local government units to fund different types of public works. They are generally regarded as safe because state and local governments do not go out of business.