Most bonds are assigned a credit rating by one or more of the credit rating agencies, such as Moody's, Standard & Poor's and Fitch Ratings. The credit rating agencies generally assign letter ratings, which range from investment grade (i.e. AAA "prime" to BBB "lower-medium grade") to non-investment or junk (i.e. BB "non-investment grade speculative to D "in default").
When a bond issuer wants to assure potential investors that a bond is really and truly safe, they often turn to a bond insurer, also known as a monoline insurer (i.e. Ambac Financial Group, Inc., MBIA). Bond insurance was very common in the fixed income markets, up until the Credit Crisis of 2008.
Bonds are among the safest investments in the world. But that hardly means that they’re risk free. For example, high yielding, lower rated Junk bonds have a high risk of default (issuer's inability to make interest payments or pay back the principal/loan); whereas lower yielding, higher rated U.S. Treasury bonds are essentially riskless.
Here’s a look at some of the inherent risks in bond investing.