Credit Risk

Credit risk is the possibility that a borrower or bond issuer will fail to make promised interest or principal payments, or that concern about repayment will reduce an investment’s value.

A simple example

If a borrower’s finances weaken, its loan may fall in value even before a missed payment occurs.

Why this matters to income investors

A high stated yield can be compensation for a meaningful chance of delayed payment, default, restructuring, or loss.

How to use credit risk in your research

Review borrower quality, collateral, seniority, covenants, non-accruals, maturities, and portfolio concentration rather than relying on yield alone.

This material is general education and information, not individualized investment, tax, or legal advice.