The general concept of bond ratings is easy to understand. Bonds are rated by three main agencies (S&P, Moody's, and Fitch), and lower ratings imply more risk. However, many investors don't realize the differences in risk and yield between each rating level. (Note: For this discussion, I'm using the S&P rating system of AAA, AA, A, B, etc.)The highest-rated bonds, AAA, are extremely unlikely to default.