Glossary
Investment grade
A credit rating of BBB- (S&P/Fitch) or Baa3 (Moody's) or higher, indicating relatively low default risk.
On this page
Investment grade is the label for bonds and issuers whose credit rating is BBB− or higher at S&P Global and Fitch, or Baa3 or higher at Moody's. It marks the agencies' judgment that default risk is relatively low. The line matters in practice because many pension funds, insurers, bank portfolios and bond funds may only hold, or hold mostly, investment-grade debt.
The rating ladder
From strongest to weakest, investment grade runs AAA, AA, A and BBB (Moody's: Aaa, Aa, A, Baa), with plus and minus (or 1, 2, 3) notches inside each letter. One notch below the line, BB+ or Ba1, the bond becomes high yield, also called junk.
How investors use it
Investment grade is a broad bucket, not a guarantee. Historical default rates for AAA debt are very low; for the BBB tier they are higher but still well below those of high-yield bonds. The BBB tier is large, so the risk of mass downgrades to junk in a recession is a recurring market worry. Ratings can also lag the market: bond prices and credit spreads often move before the agencies do, so investors read both.