- After a bond is publicly issued, it will usually receive a rating from one of the three main credit-rating agencies: Standard and Poor's, Moody's and Fitch. This rating is intended to reflect the likelihood that the bond's issuer will not default on its obligation. All three agencies use "AAA" (written "Aaa" by Moody's) to designate the bonds they believe carry the highest likelihood of being paid back.
- Mortgage securities--groups of mortgages pooled together to form a single, large security--are rated based on the credit agencies' belief that the mortgage holders would not go into default on their loan. A group of mortgages rated "AAA" would reflect an agency's belief that the vast majority of mortgage holders were likely to meet the obligations of their debts.
- The fact that a mortgage security receives an "AAA" rating does not ensure that the bond's issuer will not default. In the wake of the 2008 financial crisis, many mortgages went into default, causing bond rating agencies to downgrade securities that they had once rated as "AAA" to "junk bond" status.
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