Why might investors rely on credit ratings for structured notes?

Investors might rely on credit ratings for structured notes primarily because assessing the risk of these financial instruments can be quite complex. Structured notes are often intricately designed, combining various underlying assets, derivatives, and unique features that can make them difficult to evaluate thoroughly. Credit ratings provide an independent assessment of the creditworthiness of the issuer and the likelihood of default, helping investors to understand the associated risks without having to delve deep into the details of each structure.

These ratings serve as a valuable tool for comparison and can simplify the decision-making process for investors, especially those who may not have the resources or expertise to analyze every aspect of a structured note's configuration. This reliance on credit ratings aids in making more informed investment choices, ensuring that the investors can navigate the complexities of structured products more effectively than they could without such ratings.

In contrast, credit ratings are not the only determining factor for pricing; they do not guarantee returns; and while regulatory requirements exist for many types of bonds, credit ratings are not universally mandated for every bond or structured note.