default risk

(redirected from Default Risks)

Default risk

The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).

Default Risk

The risk that a debtor will be unable to pay back its loans. Default risk goes up if a debtor has large number of liabilities and poor cash flow. Generally speaking, companies and persons with high default risk stand a greater chance of a loan being denied and pay a higher interest rate on the loans they do receive. See also: Bankruptcy.

default risk

The possibility that a borrower will be unable to meet interest and/or principal repayment obligations on a loan agreement. Default risk has a significant effect on the value of a bond: if a borrower's ability to repay debt is impaired, default risk is higher and the value of the bond will decline.
References in periodicals archive ?
So it's no longer just interest rate and default risks that are getting the attention of examiners.
While default risks remain elevated, mortgage originators need not be as apprehensive about new originations," said Capozza, who is also a founding principal of UFA.
This does not mean that corporate default risks are permanently lower," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research.
With these differences in swap and bond default risks, swap-pricing theory implies that the yield on a par bond of equivalent maturity will be greater than or equal to swap bid-ask rates due to the existence of greater default risk.
It is found that when the insurable and the default risks are independent, underinsurance on average is optimal if insurance is fair or unfavorable.
On the premise that the above variables capture changes in the perception of interest rate and default risks by the financial markets, the multifactor regression model is specified as:
This finding strongly suggests that insured bonds with differing intrinsic default risks are not priced equally as they should be if the complete insurance coverage is a valid signal of bond quality.
Speculation occurs when instruments with low credit ratings or high default risks are purchased to obtain higher yields.
Lenders should remain cautious since default risks remain elevated.
Whether setting loss reserves or pricing new loan products, the most pressing need for lenders may be in learning how to measure and price default risks in residential loans.