Investment grade bonds are issued by low-risk to medium risk lenders. A bond rating on investment-grade debt can range from AAA to BBB. These highly rated bonds pay literally low interest because their issuers don’t have to pay more. Investors looking for an absolutely sound place to put their money will buy them.
Junk bond is debt that has been given a low credit rating by a ratings agency, below investment grade. These bonds are riskier and are rated BB or lower by Standard and Poor’s and Ba or lower by Moody’s. These lower rated bonds have high risk associated with it and hence, investors are compensated with higher interest rates, which is why junk bonds are also called high-yield bonds.
Difference between Investment Grade Bonds vs Junk Bonds –
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