Investment Grade, abbreviated IG, labels bonds that rating agencies see as carrying relatively low credit risk. In practice, this typically means securities rated BBB- or higher by S&P and Fitch, or Baa3 or higher by Moody's. U.S. Treasuries and many government-backed issues are treated as very low risk, though Treasuries are not rated by these agencies.
The designation is used by investors, fund managers, and market indices to separate higher‑quality debt from riskier, non‑investment‑grade bonds (often called high yield or junk). Many fixed‑income products restrict holdings to IG bonds, which generally lowers credit risk and may influence yield and duration characteristics. Ratings can be upgraded or downgraded, triggering movement between IG and non‑IG categories and potentially affecting index inclusion or mandate limits. Ratings are opinions about credit quality and are not guarantees of repayment.
The spread between investment-grade bonds and riskier debt reflects perceived credit risk and liquidity. In stressed markets, price behavior can diverge as investors gravitate toward higher‑quality issues. While IG bonds aim to offer smoother risk profiles than non‑IG bonds, issuer-specific risk remains, and downgrades can impact pricing and liquidity. Rating thresholds also guide many municipal and corporate debt strategies.
A portfolio includes a mix of investment-grade corporate bonds with ratings of BBB- or higher, alongside other fixed-income assets.
Credit rating · Bond rating · Non-investment-grade · Credit risk · Yield · Credit spread · Fixed-income index