Default premium

Default premium

A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default. Often the premium is measured as the yield over and above a government bond yield of similar coupon and maturity.

Default Premium

The return over and above the risk-free rate of return that an investor demands in exchange for accepting the risk inherent to an investment. The default premium becomes larger with greater amounts of risk. For example, an investment grade bond has a lower default premium than a junk bond, which carries more risk, but a higher premium than a Treasury security, which is riskless.
References in periodicals archive ?
Default risk or the bond default premium, is measured by the long term corporate to government yield spreads (DEF).
There is no risk or default premium baked into British interest rates to indicate that fear of political-economic chaos down the road is discouraging investment.
t+1] stands for the default premium, the spread between Moody's Baa and Aaa yields (Keim and Stambaugh, 1986).
1) As interest rates on this form of borrowing have been falling during the past three years, it is unlikely that any default premium exists.
In the "Pricing the Default Risk" section the concept of default premium in the zero-utility framework is posed.
Subtracting rates on comparable-maturity Treasuries from these yields produces something that looks like a default premium series.
The analysis shows that variables such as the market portfolio, the term structure, the default premium, and the consumption-aggregate wealth ratio positively affect average asset returns and command positive risk premia while the inflation portfolio negatively affects returns and commands a negative premium.
This risksharing advantage translates into a lower default premium on FDI and a smaller response to changes in a country's financing constraint.
As mentioned in the beginning of this section, we calculate the currency risk premium by adding the expected appreciation of the currency and subtracting the liquidity and default premium from the interest rate differential.
government bonds with approximately 20 years to maturity minus the one-month TB return; DPREM is the default premium.
The paper's findings are relevant for a number of default premium applications.
Failure to make such a commitment can produce a number of problems, including an inefficient increase in the default premium that the government must pay taxpayers to compensate them for the risk of tax transitions.