Money & Finance › Bonds, rates & Treasuries › Bonds: lending money in exchange for interest
Credit rating agencies: Moody's, S&P and Fitch
Since 1909· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
Moody's, S&P and Fitch grade how likely borrowers are to repay, from AAA down to D; together they issue about 95% of ratings.
See it on the Money & Finance map →How it works
John Moody began rating railroad bonds in 1909; Poor's followed in 1916 and Fitch, which created the AAA-to-D scale, in 1924. BBB- (Baa3 at Moody's) or better is 'investment grade'; below that is high yield or junk. Many pension funds, insurers and bank rules key off that line, so a rating shapes who can buy a bond and at what price. Since the 1970s issuers, not investors, pay for ratings. The SEC has recognized the agencies as official raters (NRSROs) since 1975.
Why it matters
A rating sets a borrower's interest cost. In 2008 AAA stamps on mortgage bonds that later failed spread the crisis; Dodd-Frank then cut the rules' reliance on ratings.
Think of it like
Like an appraisal the borrower orders and pays for: standardized and useful, but paid by the party who wants the high number.
Facts, rules and data
The agencies' own default studies show higher ratings default far less over decades. The 2011 Financial Crisis Inquiry Commission report, and settlements by S&P ($1.375 billion, 2015) and Moody's ($864 million, 2017), document the 2008 failures.
Debates and risks
Whether the issuer-pays model still inflates ratings, and why no rival has broken the big three's hold, remain open questions.
Connections (9)
▸Corporate bonds and credit spreads are graded by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
Companies pay the agencies to rate their bonds before selling them. The grade decides who can buy, since many pensions, insurers and funds may hold only investment grade, and sets the spread over Treasuries the company pays. Only two US companies, Microsoft and Johnson & Johnson, hold S&P's top AAA rating.
When and why
Moody's began with railroad bonds in 1909; today the big three rate thousands of companies worldwide, paid by the issuers.
How we know
Agency default studies show default rates rise steadily as ratings fall; ICE BofA spread data by rating, on FRED, show the price effect.
Debates and risks
Whether issuer-pays inflates grades, and why ratings lag markets: Enron was rated investment grade until four days before its 2001 bankruptcy.
▸High-yield 'junk' bonds are rated below investment grade by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
The line between BBB- and BB+ (Baa3 and Ba1 at Moody's) splits investment grade from junk. Crossing it matters: many institutions must sell a 'fallen angel' when it is cut, raising its borrowing costs. Ford, for example, was cut to junk in 2005 and again in 2019–20.
When and why
The investment-grade line entered US bank rules in 1936; Michael Milken's new-issue junk market grew from the late 1970s.
How we know
Agency default studies since 1920: junk-rated issuers default about 4% a year on average, investment grade about 0.1%.
Debates and risks
About half of investment-grade bonds now sit at the lowest BBB tier; whether a recession would push a wave of them into junk is debated.
▸Credit rating agencies: Moody's, S&P and Fitch downgraded (2011, 2023, 2025) US Treasury securitiesFact, law or data
The connection
S&P cut the US from AAA to AA+ in August 2011 after a debt-ceiling standoff. Fitch followed in August 2023, citing governance and rising debt, and Moody's, the last holdout, cut its Aaa to Aa1 in May 2025, citing deficits and interest costs. Treasury yields fell after the 2011 cut as investors still sought safety.
When and why
S&P on August 5, 2011; Fitch on August 1, 2023; Moody's on May 16, 2025.
How we know
The agencies' published announcements and reasoning, plus market data showing little lasting effect on Treasury yields.
Debates and risks
Whether ratings mean much for a country that borrows in its own currency, and whether further cuts could someday force some holders to sell.
▸Credit rating agencies: Moody's, S&P and Fitch gave AAA ratings to CDOs: repackaged mortgage debtFact, law or data
The connection
CDOs sold because most of each deal won AAA, letting pensions, insurers and banks buy them. Agencies used models assuming mortgage defaults would not rise together nationwide, and banks paid them per deal, a conflict critics say encouraged generous grades. When housing fell, the agencies cut tens of thousands of ratings, many from AAA to junk.
When and why
New York, 2004–2007, mainly Moody's and Standard & Poor's, with Fitch; mass downgrades came in waves from July 2007.
How we know
The Financial Crisis Inquiry Commission documented the ratings and downgrades; S&P paid $1.375 billion (2015) and Moody's $864 million (2017) in US settlements.
Debates and risks
Whether issuer-paid ratings were the main fault or investors' outsourcing of judgment, and whether the 2010 Dodd-Frank reforms fixed the problem, is debated.
▸Municipal bonds and tax-free interest are rated by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
Most munis are rated. Agencies judge general obligation bonds on an issuer's tax base, budget and pension debts, and revenue bonds on a project's cash flow. Higher grades mean lower borrowing costs for the town or authority. Until 2008, many munis bought AAA status with bond insurance, which collapsed when insurers were downgraded.
When and why
The big three rate tens of thousands of issuers. In 2010 Moody's and Fitch recalibrated muni ratings onto the same scale as corporates, raising many.
How we know
Moody's municipal default studies show rated munis default far less often than corporate bonds with the same grade.
Debates and risks
How pension shortfalls and climate risks, such as floods and wildfires, should weigh on ratings is still being worked out.
▸The debt ceiling standoffs contributed to US downgrades by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
Rating agencies grade the risk of not being paid on time. Repeated brinkmanship suggested politics could make the US miss payments it can afford. S&P cut the US from AAA to AA+ in 2011 after one standoff, and Fitch did the same in 2023, citing repeated debt-limit fights and weaker governance.
When and why
S&P on August 5, 2011, days after the Budget Control Act; Fitch on August 1, 2023, after that year's deal. Moody's cut to Aa1 in May 2025, citing deficits and interest costs.
How we know
The downgrade statements name the standoffs: S&P said brinkmanship made US policymaking 'less stable, less effective, and less predictable'.
Debates and risks
Downgrades barely raised US borrowing costs; Treasury yields actually fell after 2011 as investors sought safety, so what ratings mean for the US is debated.
▸CMBS: conduit loans pooled into commercial mortgage bonds are sliced into tranches rated by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
A CMBS deal's bonds are cut into layers. Rating agencies model the loans and decide how much lower-ranked debt must sit beneath each layer for it to earn AAA, AA and so on. Most of the pool is rated AAA; the thin bottom slices are rated below investment grade or not at all.
When and why
S&P, Moody's, Fitch, KBRA and Morningstar DBRS rate US CMBS; issuers choose which agencies to hire for each deal.
How we know
In January 2015 S&P settled SEC and state charges over misleading CMBS rating methods, paying tens of millions and accepting a one-year ban on rating conduit deals.
Debates and risks
'Ratings shopping', hiring the agency with the kindest view, is a long-running concern; how much it still inflates CMBS ratings is debated.
▸Credit-tenant-lease (CTL) financing: lending on the tenant's credit is sized off the tenant's Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
The lender sizes and prices a CTL loan mainly off the tenant's rating from Moody's, S&P or Fitch: BBB- or better usually qualifies, and the spread over Treasuries tracks that tenant's own bonds. Insurers holding the loan face NAIC capital charges based on the rating, so a downgrade lowers the loan's value.
When and why
In US credit-tenant lending by insurers and private-placement buyers, typically for investment-grade tenants.
How we know
NAIC Securities Valuation Office filing rules for CTLs and rating agencies' published CTL criteria.
Debates and risks
Whether rating-based sizing underestimates real estate risk when a tenant fails, leaving lenders with an empty building, is debated.
▸World bond markets: about $160 trillion of debt (2025) are graded by Credit rating agencies: Moody's, S&P and FitchFact, law or data
The connection
Moody's, S&P and Fitch grade most rated bonds worldwide. Ratings decide which bonds pensions and insurers may hold, especially around the investment-grade line at BBB-/Baa3, and how much capital banks must set aside. Moody's cut the US from Aaa to Aa1 in May 2025, so all three now rate the US below top grade.
When and why
Agencies based mainly in New York, rating bonds since the early 1900s; S&P downgraded the US in 2011, Fitch in 2023.
How we know
SEC annual reports on rating agencies show the three issue about 95% of credit ratings outstanding.
Debates and risks
After badly misrating mortgage bonds before 2008, whether the issuer-pays model creates conflicts is still debated.