Credit Risk Made Easy

Credit risk is the risk that the issuer will default or fail to pay the debt. This include if the issuer is unable to pay the total coupons or part of them, or is unable to pay the principal on agreed maturity date.

In fact, this is why bonds are rated.

There are cases that companies failed to pay back the bond. And bacause of that, most corporate bonds offer higher return than government bonds to attract investors.

Bonds issued by a government; which is economically strong and politically stable, are considered as the least risky.

It is the nation’s interests that bonds issued by its government have to pay their coupons and the principle sum back to the bondholders on time, so that the credibility of that government remains strong. With its reputation remain intact, the government can continue to raise capital in the future through bonds issuance.

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