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When a bond is rated investment grade, its issuer is considered able to meet its obligations, exposing bondholders to minimal default risk.
Most US corporate and municipal bonds are rated by independent services such as Moody's Investors Service and Standard & Poor's (S&P).
The ratings are based on a number of criteria, including the likelihood that the bond issuer will be able to make interest payments and repay the principal in full and on time.
The four categories of bonds rated BBB and higher by S&P or Baa and higher by Moody's are considered investment grade.