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Credit Analysis

For corporate-bond and municipal-bond funds, the credit analysis depicts the quality of bonds in the fund's portfolio.

The analysis reveals 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 federal government are of extremely high quality and thus are considered superior to bonds rated AAA, which is the highest possible rating a corporate issue can receive. Morningstar gives U.S. government bonds a credit rating separate from AAA securities to allow for a more accurate credit analysis of a portfolio's holdings.

Bonds with a B rating are the lowest bonds that are still considered to be of investment grade.

Bonds that are rated lower than B (often called junk bonds or high-yield bonds) are considered to be 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.

Like the style box, the credit analysis can help the reader determine whether or not a fund's portfolio meets a desired standard or quality. It can also shed light on the management strategy of the fund. If the fund holds a large percentage of assets in lower-quality issues, for example, then the fund follows a more aggressive style and is probably more concerned with yield than credit quality. See also Average Credit Quality


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