investment grade corporate bonds

Investment grade corporate bonds are bonds issued by corporations that have high bond credit rating, such as BBB, issued by credit rating agencies.

What constitutes an investment grade corporate bond varies from one credit rating agency to another.

For Standard & Poor's, the corporate bonds that have a credit rating of BBB or above are considered "investment grade".

For Moody's, those corporate bonds that have a credit rating of Baa-1 or Baa or above, are considered "investment grade" corporate bonds.

Corporate Bonds of Investment Grade - Implications

The corporate bonds that have a credit rating below investment grade are considered non-investment grade, or "junk" bonds.

The implications from an issuer perspective are numerous.

For one, not all investors, especially institutional investors, can invest in "junk" bonds, as per their investment rules.

Also, the rate of return demanded for the increased risk inherent in the corporate bonds below investment grade is greater that for investment grade bonds.

For smart investors, the fact that not all market participants are able to consider looking into "junk" bonds may in fact bring undiscovered opportunities, as not all "junk" bond issues seem to be traded efficiently at all times, or in other words, at prices that would reflect fair value.


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