Legal Definitions - investment-grade rating

An investment-grade rating is a rating given to a bond by a securities-evaluation agency, such as Moody's, after an appraisal of its quality. The rating is indicated by one of the top four symbols: AAA, AA, A, or BAA. This rating indicates the degree of risk in investing in the bond.

• A bond with an AAA rating is considered to be of the highest quality and has the lowest risk of default.
• A bond with a BAA rating is considered to be of lower quality and has a higher risk of default than a bond with an AAA rating.

These examples illustrate how the investment-grade rating system works. The higher the rating, the lower the risk of default and the more likely the bond is to be a safe investment. The lower the rating, the higher the risk of default and the more cautious an investor should be before investing in the bond.