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Finance Dictionary and Glossary of Investment Terms
Average Credit Quality
A measure of the overall credit quality of a given bond portfolio. The average credit quality is derived by taking the weighted average of the credit rating for each bond in the portfolio. For corporate-bond and municipal-bond funds, this section contains a credit analysis of bonds in the portfolio showing the percentage of fixed-income securities that fall within each credit-quality rating as assigned by Standard & Poor''s or Moody''s. At the top of the ratings are U.S. government bonds. Bonds issued and backed by the government are of such high quality they are considered separate from but equal to bonds rated AAA, which is the highest possible rating for a corporate issue. Bonds with a BBB rating are the lowest bonds that are still considered to be of investment grade. Bonds rated BB or lower (often called junk bonds or high-yield bonds) are considered quite speculative. Any bonds that appear in the NR/NA category are either not rated by Standard & Poor''s or Moody''s, or did not have a rating available at the time of publication. Average credit quality offers a quick way of assessing how much credit risk (in other words, default risk) there is in a given bond fund, and thus how aggressive the fund''s style is. The lower the overall credit quality, the higher the risk.