Examination of the ratings of over 7000 bonds issued in the 1970-88 period reveals that some 40% to 80% of bonds initially rated BB and above can be expected to experience at least one rating change in the 10 years following issuance. A-rated bonds appear to be more stable than AAA-rated bonds. BB-rated bonds (the highest “junk bond" category) are the least stable. Furthermore, bonds initially rated A and above have a greater tendency to be downgraded than to be upgraded. Among the investment grades, only bonds initially rated BBB tend to be upgraded more than they are downgraded. As for bonds originally rated non-investment-grade "junk", there does not appear to be a tendency toward either upgrades or downgrades in the sample period.

Results in two sub periods 1970-79 and 1980-85 reveal a tendency for a downgrade in rating to be followed by a second downgrade. That is, there is definite serial autocorrelation in ratings when the initial rating change was a downgrade; no autocorrelation is evident when the initial change was an upgrade. Investors may be able to use this information to enhance their bond portfolios' expected returns.