The chance that the issuer of fixed income security may default is known as credit risk or default risk (i.e. The issuer will be unable to make timely principal and interest payments on the security). Commercial rating agencies like "Moody's Investor Service," "Standard & Pooh's Corporation," "Duff & Phelps," "McCray," "Cris anti & Mafia," and "Fitch Investors Service," as well as credit research teams at investment banking firms and institutional investor concerns, all assign quality ratings that are used to assess credit risk.
Most bonds are sold at
cheaper prices or with yields that are lowered to equivalent levels due to this
danger. Except for the lowest credit-risk US Treasury securities, sometimes
known as "high-yield" or "Junk bonds," investors are
typically more concerned with changes in perceived credit risk &/or the
cost associated with a particular level of credit risk than with the actual
likelihood of default. This is because, despite the fact that an issuing
corporation's actual failure may be extremely unlikely, changes in how credit
risk is perceived or the spread that the market is willing to pay for a
particular degree of risk can have a direct effect on the value of a security.
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