3 Types Of Credit Risk

Question 0

Credit spread risk

Answer 0

The risk that the spread the market demands for an issue will increase or widen, resulting in inferior performance of an issue relative to other issues.

Question 1

Default risk

Answer 1

The risk that the issuer will fail to meet its obligation to make timely payment of interest and principal.

Question 2

Downgrade risk

Answer 2

The risk that the issue will be downgraded, resulting in an increase in the credit spread demanded by the market.