A bond dubbed to be worthy of investment as rated by a credit agency, due to a low risk of default (a situation where the company is unable to meet its obligations). Below investment grade is considered “junk” and a downgrade to junk status by a credit agency may cause troubles for a firm in raising capital.

It is necessary to keep in mind that credit ratings are to some extent, backward-looking,not forward-looking, and we have seen some issues with undeservingly high credit ratings in the last cycle before the subprime crisis of 2007/08.

Related Terms

• High-yield Bond
• Junk Bond
• Credit Market
• I Terms
• Go-go fund
• Chief Investment Officer-CIO

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