Glossary
From A to Z all the terms you need to skip the jargon and get started!
Investment grade
Investment grade refers to the credit quality of a bond or other fixed-income security, indicating a relatively low risk of default.
Credit rating agencies, such as Standard & Poor's, Moody's, and Fitch Ratings, assess the creditworthiness of a bond issuer and assign ratings to their bonds. Investment-grade bonds typically have ratings ranging from AAA (highest quality) to BBB- (lowest investment grade) on the S&P and Fitch scales and Aaa to Baa3 on Moody's scale. These ratings signify that the issuer is financially stable and less likely to default on its debt obligations. 💰📈
For example, a US Treasury bond is considered investment grade, as it is backed by the US government, which has a very low risk of default.
Fun fact: Investment grade bonds are often sought after by conservative investors or institutions, such as pension funds and insurance companies, because they prioritise stability and income over higher potential returns associated with riskier, non-investment-grade bonds (also known as junk bonds). 🌟🔒