Rating agencies produce information about the risk of fixed income securities, however, the various ways the information is used by financial, legal and regulatory entities may potentially influence the nature of this information production. Bond ratings are not only used to assess risk, they are also used for certification, e.g. to classify securities into investment grade and high yield (i.e., junk) status.

These classifications in turn influence institutional demand and serve as bright-line triggers in corporate credit arrangements and regulatory oversight. For example, regulations may mandate banks and insurance companies to keep much higher reserve capital for high yield issues than for investment grade, where the level of reserve capital required goes up in large discrete increments depending on which side of the investment grade boundary an issue lies. The institutional importance of credit ratings to issuers and investors has raised questions about whether the current system provides the proper incentives to optimally produce value relevant information about risk.