Default

Interest or principal not paid as promised

In detail

A default is the issuer failing to pay interest or principal on schedule, whether a company that has failed or a country in fiscal crisis. Bond prices fall sharply, and what holders recover is decided by dividing up whatever assets remain. Credit ratings are an estimate of how likely this is, which is why lower-rated bonds must offer higher yields.

Example

Missing even 1 interest payment can be treated as a default from that moment.

Related terms

Credit rating Corporate bond Credit spread

Read in the app (App Store)

For learning, not investment advice. Decisions are your own.