Investment-grade refers to bonds rated Baa3/BBB- or better. High-yield (also referred to as “non-investment-grade” or “junk” bonds) pertains to bonds rated Ba1/BB+ and lower.
What is investment grade vs non-investment grade?
Investment grade refers to the quality of a company’s credit. To be considered an investment grade issue, the company must be rated at ‘BBB’ or higher by Standard and Poor’s or Moody’s. Anything below this ‘BBB’ rating is considered non-investment grade.
What is not investment grade?
What is non-investment grade? Non-investment grade securities are those with a rating below Baa3 or BBB- 1. The best-known type is high yield, which are the securities of a publicly-traded company or municipality that has experienced a ratings downgrade or other negative event (so-called “distressed”).
What is the importance of knowing the difference between an investment grade and non-investment grade bond?
The higher rated the bond, the lower the bond yield. Bond yield refers to the return realized on a bond. As such, investment-grade bonds will always provide a lower yield than non-investment grade bonds.
What’s considered investment grade?
“AAA” and “AA” (high credit quality) and “A” and “BBB” (medium credit quality) are considered investment grade. … An investment-grade credit rating indicates a low risk of a credit default, making it an attractive investment vehicle—especially to conservative investors.
Is BB+ an investment grade?
A Ba1/BB+ rating is below investment grade, or sometimes referred to as high-yield or junk; therefore, the yield on the bond should be higher than on an investment-grade security to compensate for the greater risk of payment default that the bond investor is taking on.
Is Baa2 an investment grade?
They are consid- ered medium-grade and as such may possess speculative characteristics. Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk. Obligations rated B are considered speculative and are subject to high credit risk.
What is sub investment?
Sub–investment grade/high yield bonds are bonds with a credit rating below investment grade (Baa3 or BBB-), as judged by the bond ratings assigned by one of the major rating agencies: Moody’s Investors Service (Moody’s) and Standard & Poor’s. The ratings are the opinion of the agency.
What companies have a BBB bond rating?
Three companies are rated ‘BBB-‘: Ford Motor Co., Energy Transfer L.P., and Broadcom Inc. These represent 27% of the top 10 debt. The outlooks are stable.
What does Fitch BBB+ rating mean?
A: low default risk; slightly more vulnerable to business or economic factors. BBB: a low expectation of default; business or economic factors could adversely affect the company.
Which one of the following is another name for a junk bond?
Junk bonds are also called high-yield bonds since the higher yield is needed to help offset any risk of default.
Is a investment grade?
Bonds with a rating of BBB- (on the Standard & Poor’s and Fitch scale) or Baa3 (on Moody’s) or better are considered “investment-grade.” Bonds with lower ratings are considered “speculative” and often referred to as “high-yield” or “junk” bonds.
What are the major risk of investing in bonds?
Risk Considerations: The primary risks associated with corporate bonds are credit risk, interest rate risk, and market risk. In addition, some corporate bonds can be called for redemption by the issuer and have their principal repaid prior to the maturity date.