Most of the bonds I’m seeing are AA or AA+. Hardly any AAA options. Just trying to understand if AA is safe enough or if I’m underestimating the risk here.
AA should be fine right? I mean if it wasn’t safe they wouldn’t rate it like that.
It’s reasonably safe, but not the same as AAA. The difference usually shows up during stress. AAA issuers tend to hold up better when business conditions worsen, while AA issuers can be more sensitive to those changes.
yeah but realistically how often does that even happen, feels like we’re overthinking a bit
It’s less about frequency and more about impact. Defaults may be rare, but rating downgrades and stress events are not that uncommon in AA names. If you’re putting in a meaningful amount, that distinction matters.
so AA is okay as long as nothing major changes?
pretty much. AAA is like very stable, AA is still good but not as bulletproof. small difference on paper, bigger difference if things go south.
Most retail portfolios will have AA exposure, so it’s not unusual. The bigger mistake is concentrating too much in one issuer just because it looks safe.
okay so not risk-free, just relatively safer
Exactly. Also remember ratings can change. An AA issuer today can get downgraded if business conditions deteriorate, so it’s not a one-time check.
Yes, that’s where the confusion usually comes from. FD safety is structural. Bond safety depends on the issuer and can change over time.