A downgrade is the process of reducing the bond rating of a debt instrument. Bond rating agencies constantly monitor the credit status of issuers of debt instruments. If the financial condition of one deteriorates they issue a credit alert followed by a downgrade.
Because bond rating determines the market interest rate of a debt instrument, the downgrade causes the market value of the instrument to fall so buyers receive the new market yield. Hence, a downgrade is a significant event for a debt security and for its issuer.
Related Fool Articles
Recent Mentions on Fool.com
- Avoid Petrobras Shares. Here's why.
- This Wall Street Firm Just Took a Swipe at American Express Company
- Here's What One of the Richest Americans Has Been Buying
- Why MannKind Corp. Stock Crashed Today
- Selling Seadrill For This Reason is the Dumbest Thing You Could Do Right Now
- 5 Things Target Corporation Management Wants You to Know