Credit Risk — The risk that a bond's issuer will go into default before a bond reaches maturity.
Market Risk — The risk that a bond's value will fluctuate with changing market conditions.
Interest Rate Risk — The risk that a bond's price will fall with rising interest rates..
Credit Risk — The risk that a bond's issuer will go into default before a bond reaches maturity.
Market Risk — The risk that a bond's value will fluctuate with changing market conditions.
Interest Rate Risk — The risk that a bond's price will fall with rising interest rates..
Credit risk is the possibility of a loss happening due to a borrower's failure to repay a loan or to satisfy contractual obligations.
Traditionally, it can show the chances that a lender may not accept the owed principal and interest.
This ends up in an interruption of cash flows and improved costs for collection..
Credit risk is the potential loss to investors due to the issuer of a security being unable to repay all or part of its interest or principal due.
The greater the credit risk on an investment, the higher the yield investors demand to compensate for it..
Credit ratings published by agencies such as Moody's, Standard and Poor's, and Fitch are meant to capture and categorize credit risk.
However, institutional investors in corporate bonds often supplement these agency ratings with their own credit analysis.
Many tools can be used to analyze and assess credit risk, but two traditional metrics are inte.
The payoff for assuming all these extra risks is a higher yield.
The difference between the yield on a corporate bond and a government bond is called the credit spread (sometimes just called the yield spread).
As the illustrated yield curves demonstrate, the credit spread is the difference in yield between a corporate bond and a government bond at .
Predicting changes in a credit spread is difficult because it depends on both the specific corporate issuer and overall bond market conditions.
For example, a credit upgrade on a specific corporate bond, say from an S&P rating of BBB to A, will narrow the credit spread for that particular bond because the risk of default lessens.
If interest rates .
Investors should be aware of some other risk factors affecting corporate bonds.
Two of the most important factors are call riskand event risk.
If a corporate bond is callable, then the issuing company has the right to purchase (or pay off) the bond after a minimum time period.
If you hold a high-yielding bond and prevailing interest rates decline, .
By yield, we mean yield to maturity, which is the total yield resulting from all coupon payments and any gains from a "built-in" price appreciation.
The current yield is the portion generated by coupon payments, which are usually paid twice a year, and it accounts for most of the yield generated by corporate bonds.
For example, if you pay $95 for a.
"Credit risk" refers to the chance that investors won't be repaid for the amount they paid in, or at least for a portion of interest and principal.
Both risks must be addressed in order to properly diversify your portfolio for the best results. "Interest rate risk" refers to the sensitivity of a bond's price to changes in current interest rates.
Investor who protests economic policies by selling bonds
