Glossary · Bonds and rates
Investment grade
Investment grade means a bond has one of the four top credit ratings, BBB− or better (Baa3 at Moody’s), judged to have a low risk of default.
Also called: investment-grade bond, high-grade bond, IG, BBB or better
Rated AAA to A, Oct 2026. A 10-year Treasury paid 5.13%, 0.79 points less.
In plain words
Think of a school report card where a C or better is a pass. In the bond world the pass mark is BBB. Bonds rated BBB− or higher by S&P and Fitch, or Baa3 or higher by Moody’s, are investment grade: the agencies judge their issuers solid enough to pay their debts in good times and bad.
Below that line, bonds are junk, or high yield. The line matters more than any other step on the ratings ladder, because many pension funds, insurers and bank rules allow only investment-grade bonds.
Safer means lower pay. In Oct 2026, high-quality US company bonds (rated AAA to A) paid about 5.92% for 10 years, only 0.79 percentage points more than the US government.
Example
The cliff at BBB−
- A company’s bonds are rated BBB−, the lowest investment-grade step. They yield, say, 1.5 points more than Treasuries.
- After a bad year, S&P and Moody’s cut it one step, to BB+ and Ba1: now it is junk.
- Funds that may only hold investment grade have to sell. With many sellers at once, the price drops and the yield jumps, say to 3 points over Treasuries.
- One step down the ladder, and the company’s extra cost of borrowing doubles.
That is why so many companies sit at BBB: they borrow as much as they can while staying just above the line.
One level deeper
Within investment grade the scale still matters. AAA and AA borrowers pay almost what governments do; BBB borrowers pay noticeably more, and their extra yield widens more in bad times.
The line dates from 1936, when US bank regulators barred national banks from buying bonds below the top four grades of the rating manuals. Rules like that still shape who may own what.
Investment grade is about default, not price: a high-grade 30-year bond can still lose a lot when interest rates rise. The yields on this page are the Treasury’s figures for high-quality corporate bonds (AAA to A), a slice of investment grade that leaves out BBB.
How much more high-grade companies pay than the US government
The extra yield of 10-year bonds of US companies rated AAA to A over the 10-year Treasury, year by year. It jumped in the 2008 financial crisis and widens whenever investors grow nervous.
The numbers behind the chart
| Date | Extra yield over Treasuries |
|---|---|
| 1984 | 0.6% |
| 1990 | 1.0% |
| 2000 | 1.7% |
| 2010 | 1.6% |
| 2020 | 1.4% |
| 2022 | 1.5% |
| 2023 | 1.3% |
| 2024 | 0.8% |
| 2025 | 0.8% |
| 2026 | 0.7% |
Why it matters
The investment-grade line decides who can own a bond, and so how cheaply a company can borrow.
Most bond funds and retirement portfolios are built mainly from government and investment-grade bonds.
Moves across the line, fallen angels going down and rising stars going up, are among the biggest events in a company’s financial life.
A common mistake
Myth: Investment grade means the bond can’t lose money.
In fact: It means default is judged unlikely. Prices still fall when interest rates rise or fear spreads: at the widest, in Oct 2008, even high-quality company bonds paid 4.83 points more than Treasuries, after their prices had dropped.
Questions people ask
What ratings are investment grade?
AAA, AA, A and BBB at S&P Global and Fitch (down to BBB−), and Aaa, Aa, A and Baa at Moody’s (down to Baa3). Everything below is high yield, or junk.
Do investment-grade bonds pay more than Treasuries?
Yes, a little. In Oct 2026, high-quality corporate bonds (AAA to A) yielded 5.92%, against 5.13% for a 10-year Treasury. BBB bonds pay more than that.
Who decides if a bond is investment grade?
The rating agencies, mainly S&P Global, Moody’s and Fitch. When they disagree, many index and fund rules use the middle or the higher of the ratings.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- High-quality US corporate bonds, 10-year par yield (HQM): U.S. Department of the Treasury, High Quality Market (HQM) Corporate Bond Yield Curve, series HQMCB10YRP; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US Treasury par yield curve rates: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates (Interest Rate Statistics).
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- High-quality corporate yields are the Treasury’s HQM yield curve, fitted to US corporate bonds rated AAA, AA and A; BBB bonds, the largest part of investment grade, are not in it. The spread compares its 10-year par yield with the 10-year Treasury par yield (GS10 before 1990).
- This page explains a term. It is not investment advice.