- Credit ratings are a helpful way to compare fixed-income products like bonds, bills, and notes.
- Any bond, bill, or note acquisition or sale will be accompanied by a credit rating.
- If government and private fixed income products, such as bonds and notes, have a minimal risk of default, they are deemed investment grade in finance.
What exactly is a bond investment?
Investment-grade bonds are corporate and government debt that bond rating agencies believe will be paid back in full, plus interest.
Remember that a bond is just debt that a corporation or government agency takes on to fund projects, similar to how you may borrow to buy a house or finance a car. While every debt, whether personal or corporate, is issued with the intention of complete repayment, this isn’t always the case.
Credit rating organizations such as Fitch, Moody’s, and Standard & Poor’s examine bonds for this reason. Investment-grade bonds are assigned ratings of BBB- (Standard & Poor’s and Fitch) or Baa3 (Moody’s). Investment grade bonds have a reduced risk of default and are more likely to be repaid, making them a good option for more conservative portfolios looking for diversification or income.
Junk bonds, on the other hand, are risky debt with attractive returns but a higher risk of the issuer failing to repay your investment or satisfy their interest payment commitments.
Is a B+ investment grade possible?
A corporation, fixed-income asset, or floating-rate loan may receive a B1/B+ credit rating, which is one of numerous non-investment grade credit ratings (commonly known as “junk”) (FRN). This grade indicates that the issuer is high-risk, with a higher-than-average risk of default. B1/B+ ratings are barely below investment grade, however they are the highest non-investment grade rating.
What is the difference between a bond with an A rating and one with a B rating?
Some of the most well-known bond-rating agencies are Moody’s, Standard and Poor’s, Fitch Ratings, and DBRS. These organizations exist to give quantitative and qualitative descriptions of the fixed income securities that are available to investors. In general, a “AAA” high-grade rated bond provides more security and lesser profit potential (lower yield) than a speculative bond rated “B-.”
What are some investment-grade ratings?
Debt (such as a bond or a loan) is considered investment grade if Standard & Poor’s has awarded it a credit rating of BBB- or higher. Moody’s assigns a rating of Baa3 or above.
When is it OK to invest in investment-grade bonds?
An investment-grade bond is a bond classification that denotes bonds with a low credit risk when compared to other bonds. Historically, investment-grade bonds have had low default rates (low credit risk). Investment-grade bonds pay lower interest rates than non-investment-grade bonds.
Is it safe to buy investment-grade bonds?
Because the issuers’ finances are sufficient to suggest a good capacity to repay obligations, investment-grade bonds are deemed safer than other bonds.
What is the B3 rating from Moody’s?
For “obligations considered speculative and exposed to significant credit risk,” Moody’s assigns a B3 grade. 1 Entities with this grade may be in financial distress or have insufficient cash reserves in comparison to their company needs, debt, or other financial obligations.
Is a single B investment grade possible?
Standard & Poor’s and Moody’s employ separate designations to indicate a bond’s credit quality rating, which consist of the upper- and lower-case letters “A” and “B.” Investment grade is defined as “AAA” and “AA” (high credit quality) and “A” and “BBB” (medium credit quality). Bonds with credit ratings below these categories (“BB,” “B,” “CCC,” and so on) are referred to as “junk bonds” because they have a low credit grade.
What is the meaning of an A2 bond rating?
A2 is Moody’s Long-Term Corporate Obligation Rating’s sixth highest rating. A2-rated obligations are considered upper-medium grade and have a low credit risk. A1 is a notch higher on the scale.