Final answer:
An investment-grade bond is considered to have a low probability of default according to credit rating agencies. These bonds are safer than high-yield bonds and often come from entities like the U.S. government or large corporations with high credit ratings. Risk mitigation strategies include diversification among different issuers.
Step-by-step explanation:
A bond that has been judged by credit rating agencies as having a relatively low probability of default is known as an investment-grade bond. These bonds are considered to be safer investments compared to high-yield bonds, which offer relatively high-interest rates to compensate for their higher chance of default. Credit rating agencies such as Moody's assess the creditworthiness of bond issuers and provide ratings that help investors gauge the risk level of different bonds. For example, bonds issued by the U.S. government or large corporations typically receive high credit ratings, indicating lower risk to investors, whereas corporate bonds with an AAA rating are seen as relatively safe borrowers. In the event of the issuer's bankruptcy, bondholders can ask for the company to be liquidated to repay the debt. Diversification across various issuers can also help mitigate risk, as not all firms are likely to go bankrupt simultaneously.