Just call me angel of the funding, angel...Yeah.
Just like angels are usually a welcome sight, an angel bond is one that has a medium or high rating. If the three big bond rating agencies (Moody’s, S&P, and Fitch) rate a bond BBB or Baa3 and higher, the bonds are considered low risk. However, they also provide a lower interest rate since the issuer has a high credit rating.
Most municipal bonds and all U.S. Treasury bonds are considered to be angel bonds. The agencies rate a bond when it is first issued. However, they may lower the rating over time if a municipality, for example, is experiencing economic challenges such as filing for bankruptcy (Detroit, 2013), or anything that increases the risk that they might not be able to pay back the principal.
If a bond was once an angel bond but then is downgraded to a “junk” rating, it is known as a fallen angel. Think of JC Penny and Toys Are Us and Sears and a whole slew of soon-to-be-lunch-for-Amazon companies.
Related or Semi-related Video
Finance: What are Government Bonds?52 Views
finance a la shmoop. what are government bonds?
now we're gonna narrow this question a bit and declare these bonds to be US [hands shape the question]
government bonds. our answer would be a tad different if we were discussing
bonds backed by North Korea Nigeria or Egypt so US government bonds come in a
few flavours. generally speaking they range in duration that is how long it
takes for them to mature and the principal get paid off. short-term US
government paper it's a fancy term for a bond ,refers to things that come due in a
year or less. that's short-term. year or less. and then there are Treasury bills
which come in a variety of durations and our price like this note how different
these look versus just you know buying a bond .but when you buy a bond it has a [chart shows prices]
face amount of say a thousand bucks for what is called its par value. that piece
of paper might agree that clown shoes incorporated which is where most
congressmen get their Footwear of course, will pay 30 bucks twice a year to the
holder for 10 years, and then pay back the original thousand bucks invested
it's like a normal vanilla bond, the interest rate here in this case is 6%
per year, but many US government notes are sold at auction which means they
sell at a discount to their par value. well regardless of how they're sold US [auction with a clown in attendance]
government bonds are backed by what is generally perceived in the world as the
most certain or secure financial backing. even more powerful than Google .if sorry
Larry and Sergey we're just keeping it real. the bonds are backed specifically
by the US government's right to tax its citizens. and oh they tax us. do they ever.
so now you can stop wondering about that bottomless hole a third or more of every
paycheck vanishes into. [portion of paycheck flies down dark hole in the ground]
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