What is the primary credit concern for investment grade bonds?

The primary credit concern for investment-grade bonds is credit default risk. Investment-grade bonds are generally issued by companies or governments with lower credit risk, meaning they are more likely to meet their debt obligations. However, credit default risk remains a crucial consideration as it reflects the possibility that the issuer may fail to pay interest or principal on the bond when due.

While interest rate risk, inflation risk, and credit spread volatility are important factors to consider for bond investors, they are not the main focus when evaluating the creditworthiness of investment-grade bonds. Interest rate risk pertains to the potential impact of changing interest rates on bond valuations. Inflation risk deals with the eroding purchasing power of fixed returns. Credit spread volatility involves the fluctuations in the spread between different grades of bonds that can affect market prices but does not directly indicate the issuer's likelihood of default.

In contrast, credit default risk directly assesses the issuer's financial health and ability to repay their debt, making it the primary credit concern for investment-grade bonds.