Default Risk

The risk that a borrower will not pay the interest and/or principal on a loan as it becomes due.  If the issuer defaults, investors receive less that the promised return on the bond.  Default risk is influenced by both the financial strength of the issuer and the terms of the bond contract, especially whether collateral has been pledged to secure the bond.  The greater the default risk, the higher the bond's yield to maturity (YTM).
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