Credit risk is the risk that a borrower will fail to make promised bond payments.
For a bond investor, this can mean missed interest, delayed payments, or failure to repay principal at maturity. Credit risk exists for corporate and government borrowers, although its level depends on the issuer and the security’s legal structure.
Credit-rating agencies such as Moody’s, S&P Global Ratings, and Fitch Ratings assess issuers and debt instruments, but their ratings are opinions rather than guarantees. Investors also examine financial statements, cash flows, collateral, seniority, and economic conditions.
Credit risk differs from interest-rate risk. Interest-rate changes can move a bond’s market price even when the issuer remains fully able to pay. A bond may therefore have low default risk but still experience substantial price volatility before maturity.