Measuring risk in the fixed income market

Would you rather senior debt from a company with a higher probability of failing, or lower ranking debt from a better rated company?

Summary: When investing in fixed income, a senior secured lender ranks higher than a deeply subordinated bondholder should an issuer fail. It could be implied that investing in higher ranking bonds carries less risk. But this may be a secondary consideration.

Key take out: For many investors the primary consideration may be the probability of an issuer failing, and thus the risk adjusted return that is on offer.

Key beneficiaries: General investors. Category: Investment bonds.

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