Credit Risk
Educational only, not financial advice.
Credit risk (or default risk) is the chance that a bond issuer fails to make its promised interest payments or repay the principal at maturity.
Why it matters
- Government bonds from stable countries typically carry lower credit risk than corporate bonds.
- Higher-yield ('junk') bonds pay more interest specifically because they carry more credit risk.
- Credit rating agencies assign ratings (like AAA or BB) to help investors gauge relative credit risk.
Simple example
- A bond from a financially stable government is generally considered to have very low credit risk.
- A bond from a financially struggling company might offer a much higher yield specifically to compensate for higher credit risk.
How beginners use this
Higher yield usually means more credit risk. Diversified investment-grade or government bond ETFs keep single-issuer default risk small inside a defensive sleeve. See bonds basics.
Related terms
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Sources
Reviewed by Greg Parsons. Links checked October 14, 2026. Educational only, not financial advice.