Definition of Investment-Grade Corporate Bonds

A corporate bond is a debt instrument issued by a corporation. Investment-grade corporate bonds are high-quality bonds with a high chance of repayment. Bonds are an investment and do have risks, but investment-grade corporate bonds are among the safest of investments.

What is a Bond Anyway?

A bond is an issuance of debt by a corporation. The lender is the bond holder, the borrower is the corporation. All bonds have a time frame in which they must be repaid, and the bond holder receives interest for that time frame.

Bond Ratings

There are several rating agencies that classify corporate bonds. A few include Moody's, Fitch and S&P. The purpose of these agencies is to rate the likelihood that a corporate bond will receive all interest payments and full principle repayment. Investment-grade bonds are rated AAA. Lower quality bonds get grades like AA, A-, BBB, BB and so on.

Safer Than Stock

Bonds are considered safer investments than stock investments, because if the company were to file for bankruptcy, the bond holders would get paid before the stock holders.

Non-Investment Grade Bonds

Non-investment grade bonds are typically called junk bonds. These junk bonds earn a higher rate of interest but are much less likely to be repaid. The additional interest they pay is commensurate with the risk they carry.

Bonds as Income Source

Investing in investment grade corporate bonds can be a way to generate a steady stream of income. The coupon (interest) payments can generate the income stream. When the principle is repaid, it can be reinvested.