Yes, based on standard financial definitions and the provided reference, a B rating is considered "junk."
According to financial markets and the reference provided, bond ratings are used to assess the creditworthiness of an issuer. The rating scale helps investors understand the likelihood of the issuer defaulting on its debt obligations. Different rating agencies have slightly different scales, but they follow a similar structure.
The key distinction is between "investment grade" and "non-investment grade" bonds. The reference explicitly states: "Bond ratings below BBB/Baa are considered to be not investment grade and are colloquially called “junk bonds.”"
Here's how common rating scales broadly map out the investment grade and non-investment grade tiers:
Bond Rating Tiers
| Rating Category | Common Agency Examples (S&P, Fitch / Moody's) | Investment Grade? | Colloquial Term |
|---|---|---|---|
| High Quality | AAA / Aaa | Yes | Prime, High Grade |
| Upper Medium Grade | AA / Aa | Yes | High Grade |
| Medium Grade | A / A | Yes | Upper Medium Grade |
| Lower Medium Grade | BBB / Baa | Yes | Lower Medium Grade |
| Speculative (Non-IG) | BB / Ba | No | Junk, High-Yield |
| Highly Speculative | B / B | No | Junk, High-Yield |
| Substantial Risk | CCC / Caa | No | Junk, High-Yield |
| Default Imminent | CC / Ca | No | Junk, High-Yield |
| Default | D / C | No | In Default |
As the table illustrates and the reference confirms, ratings below BBB (by agencies like Standard & Poor's and Fitch) or Baa (by Moody's) fall into the non-investment grade category. A 'B' rating is squarely below this threshold, meaning it is considered speculative or non-investment grade debt.
Why are they called "Junk Bonds"?
The term "junk bond" is a colloquialism for bonds rated below investment grade. While it sounds negative, it simply reflects the higher level of risk associated with these bonds compared to investment-grade debt. Companies or entities with B ratings are considered more likely to default on their debt payments than those with BBB or higher ratings.
- Higher Risk, Higher Potential Reward: Because of this increased risk, these bonds typically offer a higher yield (interest rate) to compensate investors. This is why they are also often referred to as "high-yield bonds."
- Volatility: Prices of junk bonds tend to be more sensitive to economic conditions and the specific financial health of the issuer.
In conclusion, a B rating signifies a bond that is not considered investment grade and falls into the category commonly known as "junk bonds" or "high-yield bonds" due to its speculative nature and higher default risk.
