Bonds or debt securities rated BBB- or higher by Standard & Poor's (or Baa3 by Moody's), indicating relatively low risk of default. Many institutional investors are restricted to investing only in investment-grade securities.
Compound term from 'investment' (from Latin investire, meaning to clothe or commit money) and 'grade' (from Latin gradus, meaning step or degree). Term became standard in the 1970s as institutional investment guidelines became more formalized.
The investment-grade threshold is like a velvet rope at an exclusive club - cross below BBB- and suddenly pension funds and insurance companies can't buy your bonds anymore, creating a massive cliff effect that can dramatically increase borrowing costs!
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