Credit rating agencies, such as Standard & Poor’s, Moody’s and Fitch assign ratings to bonds to reflect the risk that the issuer will be unable to meet its debt obligations.

Essentially, the ratings fall within two broad categories; investment grade and non-investment grade (also called sub-investment grade). For example, bonds with a Standard and Poor’s rating of ‘BBB-‘ or above are considered “investment grade” and issues with ratings lower than ‘BBB-‘ are called “sub-investment grade”. An issue rated ‘AAA’ is regarded as having the lowest default risk.