Credit risk
Also called: default risk, credit rating
The risk that a borrower fails to pay interest or repay a loan in full.
Credit risk is low for a government borrowing in its own currency and higher for companies with weak finances. Higher yields usually compensate for higher credit risk, and credit ratings estimate it, though they can be wrong or change suddenly.
Learn more in these lessons
- Equity and fixed incomeHow do bonds, deposits and debt funds differ from shares, and can they lose money?
- Case study: a debt-funded group in crisis (IL&FS, 2018)What can investors learn from the IL&FS crisis of 2018?
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