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Within one credit rating, one bond is more or less interchangeable for another

Keep in mind, however, that the futher away from AAA you move, the less interchangeable those corpoate bonds become and the greater importance that has to be given to company-specific factors. Also keep in mind that even AAA issues default (though rarely) and they get downgraded (a more frequent event). A rating from Moody's, SP, Fitches, etc, is only an opinion of credit-worthiness and the likelihood the company will fufill its promise, not guarantee to pay interest and return principal. Only the governement guarantees its debt issues.

if your portfolio is diversified enough).

jrr7, I think that qualification contradicts the first half of your assertion. Either an issue is interchangeable, or it isn't. If you have to depend on diversification to bail you out of mistakes, then the issues weren't interchangeable. Issue A failed, but Issue B didn't.

In my opinion, only guaranteed issues are truly interchangeable. Everything else is a calculated gamble against which good Due Diligence and Proper Diversification are the only defense.


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