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Investment Grade Bonds

The financial world is in chaos and investors are confused. What represents a safe investment? Which bonds offer investors a good return? Are there any guidelines that help you to know?

The answers to these questions are simple and they are all to do with ratings. All bonds are rated as to their creditworthiness by investment ratings agencies. You are bound to have heard of some of them. The most prestigious and most highly-recognised ones are Standard and Poor's, Moody's and DBRS.

They rate bonds very simply, using a scale you'll be familiar with from school. All bonds are rated from A to D, with AAA representing the safest investment and D representing the riskiest.

Investment grade bonds are rated BBB or higher on these scales. This means that they are considered reasonably safe and can also be said to offer a good return. Investment grade bonds are considered reliably certain enough to be repaid that banks can invest in them.

These ratings and investment grade bonds in particular are vital for the industry. They determine how much companies and other entities that issue debt have to pay to access credit markets. This, in turn, determines the levels of interest they pay on their debts.

The risks associated with investment grade bonds (also known as investment grade corporate debt in some circles) are considered noticeably higher than in the case of first-class government bonds. The difference in the rates between them is called investment grade spread.

This spread is an indicator of the market's belief in the stability of the economy. The higher the investment grade spreads are, the weaker the economy is considered.

Nevertheless, investment grade bonds are the investment vehicle of choice for many institutions and individuals. They represent smart choices.

So, when it comes to investing, have a look at the ratings. Bonds that qualify as investment rate must be BBB or higher. They are reliable enough that banks invest in them. And if the banks are doing it, so too can you.

It is simply vital that you pay attention to bond ratings when investing. They will allow you to tell at a glance how experts have weighed the risk of the investment. And with their help, you can tell with bonds - and in particular which investment grade bonds - are worth investing in.

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