Investing term
What is Investment-grade (IG)?
Corporate bonds rated BBB- or better — issuers strong enough that default is rare but not impossible.
Investment-grade (IG) bonds are those rated BBB- or higher by the major credit-rating agencies — issued by governments and companies financially strong enough that default is uncommon, though never impossible. The rating scale runs from the highest (AAA) down through AA, A, and BBB, with BBB- as the cutoff: anything below it is 'below investment grade', also called high-yield or junk.
That cutoff matters practically. Investment-grade bonds pay lower yields, reflecting their lower default risk, and they form the stable, income-and-ballast portion of many portfolios. Many institutions and funds are restricted to holding only investment-grade bonds, so a downgrade below the line (a 'fallen angel') can force selling and move prices. For most investors, investment-grade bonds — especially high-quality government and top-rated corporate debt — are the appropriate bond exposure, offering steadier income and better crisis protection than the higher yields (and higher default risk) of junk.
Ratings run from AAA down; BBB− and above is investment grade with low default risk. Below it is high-yield 'junk', which behaves more like a risky asset — falling hard in downturns just when you wanted safety.
For example
A company rated A pays a modest yield because default is unlikely; if it were downgraded to BB (junk), its yield would jump to compensate for the higher default risk that a below-investment-grade rating signals.
Learn it by doing
That's Investment-grade (IG) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 19, Beyond Stocks).
Try the free lesson →Why it matters to you
Investment-grade matters because it draws the practical line between bonds held for safety and income and those that are really a bet on a risky borrower. The IG label signals a low (not zero) chance of default, making these bonds the appropriate ballast for most portfolios and the reliable diversifier in a crisis. Understanding the cutoff — and that reaching below it for higher yield means taking real default risk — helps you match your bond holdings to their purpose: stability, not speculation.
⚠ Reaching below investment grade for yield
Bonds just below the investment-grade line pay tempting higher yields, but that yield is compensation for meaningfully higher default risk, and below-IG bonds behave more like risky assets — falling hard in downturns just when you wanted safety. Treating high-yield bonds as a slightly better version of safe bonds misjudges them; the whole point of the ballast portion is stability, which junk doesn't provide.