Bonds & rates
Default
A borrower failing to make a payment, or breaching a term of the debt agreement.
How it works
Default does not always mean nothing is repaid. Bondholders usually recover a portion through restructuring or liquidation, and where they sit in the capital structure decides how much.
Technical default — breaching a covenant without missing a payment — can trigger the same consequences and often precedes the real thing.
Related terms
- Credit riskThe risk that a borrower fails to make the payments it promised.
- Recovery rateHow much of a defaulted bond’s face value holders eventually get back.
- CovenantA condition in a loan agreement that the borrower must keep to.
- Capital structureThe ranking of everyone who funded a company, deciding who gets paid first if it fails.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.