Credit risk
The loss due to a debtor’s inability to meet its bond obligations. Credit spread risk {aka risk premium, widening of bond spread over the benchmark - happens before ratings downgrade, yield on a risky bond = yield on a defalut free bond + risk premiun, increase risk-> increase spread->decrease price}.
Downgrade risk
Fall in the bond price due to a ratings downgrade.
Default risk
Issuer fails to make interest and principal payments
The highest – prime grade, below BBB- or Baa3-noninvestment grade (junk bonds)
Examples:
Moody’s: Aaa, Aa2 etc
Standard & Poor’s: AAA, AA+ etc
Fitch: use similar system to S&P
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment