Investment Grade
What It Is:
Investment grade is a quality designation ascribed by rating agencies to bonds that have little risk of default.
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How It Works/Example:
Municipal and corporate bonds are rated by credit agencies, such as Standard & Poor's and Moody's, based on the creditworthiness of the issuer. Investment grade indicates that a bond is a safe, low-risk debt instrument on which the issuer is unlikely to default.
Ratings of BBB- or higher by Standard & Poor's or ratings of Baa3 or higher by Moody's designate a bond as investment grade. Ratings are subject to change depending of the financial health of the issuer.
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Why It Matters:
Bond investors should be aware that a decline in a bond's rating could adversely affect its market value.
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Cached on February 4, 2012, 8:46 am