Investment Grade


DEFINITION of 'Investment Grade'

A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor's, use different designations consisting of upper- and lower-case letters 'A' and 'B' to identify a bond's credit quality rating. 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations ('BB', 'B', 'CCC', etc.) are considered low credit quality, and are commonly referred to as "junk bonds".


Loading the player...

BREAKING DOWN 'Investment Grade'

Investors should note that government bonds, or Treasuries, are not subject to credit quality ratings. These securities are considered to be of the very highest credit quality. In the case of municipal and corporate bond funds, fund company literature, such as the fund prospectus and independent investment research reports will report an "average credit quality" for the fund's portfolio as a whole.

Investors should be aware that an agency downgrade of a company's bonds from 'BBB' to 'BB' reclassifies its debt from investment grade to "junk" status with just a one-step drop in quality. The repercussions of such an event can be highly problematic for the issuer and can also adversely affect bond prices for investors. Safety-conscious fund investors should pay attention to a bond fund's portfolio credit quality breakdown.

  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
  3. Junk Bond

    A colloquial term for a high-yield or non-investment grade bond. ...
  4. Blue Chip

    A nationally recognized, well-established and financially sound ...
  5. Capitalization

    1. In accounting, it is where costs to acquire an asset are included ...
  6. Fundamental Analysis

    A method of evaluating a security that entails attempting to ...
Related Articles
  1. Mutual Funds & ETFs

    The 3 Best Vanguard Mutual Funds for Your Roth IRA

    Learn about Vanguard funds that are good choices for a Roth IRA. Read about how Vanguard funds make it easy for investors to diversify their portfolios.
  2. Mutual Funds & ETFs

    Are Vanguard ETFs a safe investment?

    Learn about safe ETF funds available from Vanguard. Learn why bond funds have low volatility, but still do have certain risks for investors.
  3. Stock Analysis

    Walt Disney Stock: A Dividend Analysis

    Learn about the Walt Disney Corporation, its dividend policy, historic dividend yields and the company's dividend prospects going forward.
  4. Mutual Funds & ETFs

    3 Mutual Funds With the Lowest Expense Ratios

    Learn about the three mutual funds that have one of the lowest expense ratios and focus on different investment strategies of investing in bonds and stocks.
  5. Mutual Funds & ETFs

    Top 5 Corporate Bond Mutual Funds

    Learn about the top five mutual funds that invest in corporate bonds that have investment grade quality and speculative credit ratings.
  6. Mutual Funds & ETFs

    Top 3 German Bonds ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and private bonds issued by Germany with different duration yields.
  7. Mutual Funds & ETFs

    Top 4 International Treasury Bond ETFs

    Learn about the top four international treasury bond funds that hold sovereign foreign bonds, which can be denominated in U.S. dollars and local currencies.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total International Bond

    Learn about the Vanguard Total International Bond exchange-traded fund, which invests in investment-grade foreign, sovereign and corporate bonds.
  9. Economics

    Is Puerto Rico the Next Greece?

    Find out why the Puerto Rican debt downgrade does not necessarily mean the Caribbean island territory is the next Greece with a looming major crisis.
  10. Mutual Funds & ETFs

    Top 4 European Bonds ETFs

    Learn about the top exchange-traded funds (ETFs) that invest primarily in treasury and corporate bonds issued by European governments and companies.
  1. Where can I find information about corporate bond issues?

    Information about new and existing corporate bond issues is published regularly in financial newspapers, such as The Wall ... Read Full Answer >>
  2. What are some examples of high yield bonds?

    Issuers of high-yield bonds can be firms from virtually any market sector. The noninvestment grade rating of their bond issues ... Read Full Answer >>
  3. What are the top high yield bond ETFs?

    Three of the most popular high-yield bond exchange-traded funds, or ETFs, are the Peritus High Yield ETF (HYLD), the SPDR ... Read Full Answer >>
  4. What are the highest-yielding investment grade bonds?

    The investment grade bonds with the highest yield are all corporate bonds rated either BBB or Baa, depending on the credit ... Read Full Answer >>
  5. How can I tell if a security is considered investment grade?

    It is possible to tell if a security is considered to be investment grade by looking at that security's ratings with either ... Read Full Answer >>
  6. What is the safest way to invest in the food and beverage industry?

    There is no way to eliminate all risk from investing. If there were, investors would not be compensated for their capital. ... Read Full Answer >>
  7. What does investment grade mean?

    Credit ratings provide a useful measure for comparing fixed-income securities, such as bonds, bills and notes. Most companies ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center