What is Default Risk?

Question

Accepted Answer

Default Risk is the financial risk that a borrower, such as a corporation, sovereign government, or individual, will fail to meet their debt obligations, including principal and interest payments, on a specified financial instrument like a bond, loan, or repurchase agreement (repo). In the context of Treasury and Real-World Assets (RWA), this risk is paramount as it directly impacts the valuation, credit rating, and security of tokenized assets backed by debt instruments.

Default Risk

What is Default Risk?

What are the primary types of Default Risk and how are they measured in the RWA and Treasury markets?

How does Default Risk specifically impact the valuation and tokenization of Real-World Assets (RWA) like corporate bonds and real estate?

What are the key mitigation strategies and financial instruments used by investors to hedge against Default Risk in fixed-income portfolios?

When have major sovereign defaults occurred, and what were the resulting systemic impacts on global financial stability and the perception of risk-free assets?

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