Definition
Investment-grade bonds are considered suitable for conservative investors due to their low default risk. Many institutional investors (pension funds, insurance companies) are mandated to hold only investment-grade securities. The boundary between BBB- and BB+ is the most consequential rating threshold in fixed income.
lightbulb Example
A large-cap company issues 10-year bonds rated A-, offering 4.8% yield versus 4.2% for Treasuries. The 60bps spread compensates for minimal but non-zero default risk.
verified_user Key Points
- BBB- / Baa3 and above
- Institutional investors often restricted to IG only
- Lower yields but lower default risk
- Fallen angels = downgraded from IG to HY