Investment-grade bond
Also known as: IG bond
An investment-grade bond is a rated highly enough by credit rating agencies to be considered to carry low . Ratings agencies assign letter grades reflecting their assessment of an issuer's ability to meet its debt obligations, and falling within the higher tiers of that scale are classified as investment grade, while anything below is classified as high-yield.
Because of their lower assessed , investment-grade bonds pay lower than issued by weaker credits, and their prices tend to move more in response to broader interest rate changes than to company-specific news, since the market assigns a low probability of default regardless of ordinary business fluctuations. Many large , including and insurance companies, are required by their own investment guidelines to hold primarily or exclusively investment-grade debt.
A 's investment-grade status is not permanent. A company that takes on too much debt or sees its business deteriorate can be downgraded below the investment-grade threshold, becoming a , which can trigger forced selling from investors whose mandates only permit investment-grade holdings. This makes credit rating trends, not just the current rating, a meaningful thing for a investor to track.