What happens when bonds are downgraded by rating agencies?

When bonds are downgraded by rating agencies, it indicates a perceived increase in credit risk, suggesting that the issuer may be less likely to meet its debt obligations. This often leads to a decrease in the bonds' market value as investors demand higher yields to compensate for the increased risk. Additionally, a downgrade can trigger sell-offs, affect the issuer's borrowing costs, and impact investor confidence in the overall financial stability of the entity involved.