What does a rating agency assess in relation to bonds?

A rating agency assesses bond creditworthiness, which is crucial for investors when considering the risk associated with investing in a particular bond. The creditworthiness evaluation typically involves analyzing the issuer's financial health, repayment capacity, revenue generation, and overall economic environment. By assigning a credit rating, the agency provides an assessment of the likelihood that the issuer will be able to make required payments on time, including both interest and principal. This rating helps investors make informed decisions regarding the risk versus return of different bonds in the market.

In contrast, investment strategies, market conditions, and closing costs are not the primary focus of rating agencies. Investment strategies relate to how an investor plans to approach their portfolio and do not directly influence the credit assessment of a bond. While market conditions may impact bond prices and general investment sentiment, they are not specifically assessed by rating agencies in regard to an issuer's creditworthiness. Similarly, closing costs pertain to transactional expenses related to investments or bond purchases and do not reflect the credit quality of the bond itself.