default risk

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).
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Practical and theoretical financial models both use the expected bond default risk premium, measured by the forecasted spread between higher and lower grade bond returns, as a measure of market risk aversion.
Health care REITs are being drawn to assisted living facilities by their high occupancy rates, good lease payment coverage ratios, and low default risk. All of these factors combine to make assisted living a growth area for the REITs.
This rate should reflect both the current level of return on securities with similar cash flows and the default risk of the individual borrower.
There are two ways of viewing swap default risk: (i) actual exposure, which is a measure of the loss if the counterparty were to default and is based on the movement in swap market rates between the inception of the agreement and the current date; and (ii) potential exposure, which is based on a forecast of how market conditions might change between the present and the swap's maturity date, including in some manner the probability of default by the counterparty.
Faysal Income & Growth Fund (FIGF) is to provide superior long-term risk adjusted returns by investing in a diverse pool of fixed income securities, including money market instruments; in particular, the aim is to minimize interest rate risk through duration management and default risk through portfolio diversification.
"Mid-caps have a more established business, better access to capital, less default risk, and lower valuations than small-caps, while still retaining some of the higher growth characteristics commonly associated with small-caps," he said.
A CDS premium is additional interest paid on borrowing to offset a country's default risk.
'AA' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country.
Ratings and credit scores have an ambiguous timeframe and do not answer the question of what is driving the default risk. Forecasting introduces biases.
For both the SMP and OMT, the researchers find that the majority of the decline in yields can be explained by a drop in default risk and a fall in the degree of market segmentation.
Dissimilar to the latter, subsidies raise college investment without escalating the default risk for student loans in the private market.
After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved risk scores (indicating lower default risk).