Investment Grade
Definition
Investment Grade (IG) is a label assigned to a subset of credit ratings belonging to a Rating Scale which indicates that the Credit Risk associated with the rated entity (or product) is relatively low, reflecting a reliable company. The term is used primarily in the context of public ratings of corporate or sovereign bonds produced by credit rating agencies.
Entities that do not enjoy an investment grade label may be denoted Sub/non-investment Grade, Speculative, High-Yield, or (in derogatory language) Junk-Rated.
Usage
The term is are a market convention and do not imply any recommendation or endorsement of a specific security for investment purposes. Yet the designation is important because a variety of investors may have in place internal or external guidance and/or limits that restrict the amount (if any) of non-investment grade credit instruments they may hold (invest in). In turn this type of market segmentation has an impact on the liquidity and hence associated risk premium of such debt.
The term is not used in the context of credit ratings or credit scores for individual persons. Even if the credit risk of an individual would be low enough to justify the designation, such retail debt is typically not significant in size to justify a public rating. On the other hand pooled credit risks (e.g., mortage, credit card debt) bundled into securities as part of a Securitisation structure do follow the same convention.
Rating Agency Thresholds
- Credit rating is BBB- or higher by Standard & Poor's
- Credit rating is Baa3 or higher by Moody's
- Credit rating is BBB- or higher by Fitch
