Not to be confused with the probability that the borrower will be unable to meet the obligations of principal and interest payments, default risk is the possibility of the borrower violating one of the many covenants within the bond agreement.

Default Risk

The risk associated with a borrower failing to make required payments on a debt they owe.

Bond Agreement

A legal contract between the bond issuer and the bondholders, outlining the terms of the bond such as the interest rate, maturity date, and obligations of the issuer.