Investment Grade

A bond that is investment grade has a rating of Baa or higher from Moody's Investors Service, a rating of BBB or higher from Standard and Poor's or both. Bonds with lower ratings - - or no ratings by any stretch of the imagination - - are named speculative grade.
Numerous institutional investors have policies that expect them to limit their bond investments to investment-grade issues.

Highlights

• Different bond rating agencies have different rating images to mean investment grade bonds.
• An investment grade rating signals that a corporate or municipal bond has a somewhat low risk of default.
• Moody's awards an "Aaa" rating to companies it views as the least prone to default.
• Standard and Poor's awards a "AAA" rating to companies it considers least prone to default.

FAQ

What Is Investment Grade versus High Yield?

High yield bonds are generally viewed as higher risk than investment grade bonds. High yield bonds, nonetheless, will generally offer a higher return — to make up for the higher risk of default of the issuer.

What Is Considered Investment Grade?

Investment grade is viewed as rated BBB-or higher for Fitch and S&P Global. Investment grade for Moody's is viewed as Baa3 or higher.

What Are AAA Bonds?

Bonds that are rated AAA have the highest conceivable rating. The issuers of these bonds have the highest creditworthiness and are expected to meet financial obligations without any problem. AAA bonds have the lowest risk of default.