The transition matrix below shows the probability of default and credit rating migrations for each credit rating.

Transition matrices can be calculated by observing the historical pattern of rating change and default. They have been published by S&P and Moody's rating agencies.

To read the table, find today's rating on the left and follow along that row to the column that represents the rating at the risk horizon. For instance, the leftmost bottom figure of 0.17% says that there is a 0.17% chance that a

CCC rated credit will migrate to AAA at the end of the year. Observe how the probability of AAA or AA credits defaulting over 1 year is so miniscule, it rounds to 0.