Investment Grade

Investment grade describes a bond rated BBB-/Baa3 or higher by the major credit rating agencies, signaling a relatively low risk of default. Many pension funds, insurance companies, and conservative bond funds are restricted by their own rules to holding only investment-grade debt.

The line between the lowest investment-grade rating and the highest junk rating matters more than the numbers alone suggest: a downgrade from BBB- to BB+ can force large institutional holders to sell regardless of their view on the company, simply because their mandate no longer permits holding it.