What are the different types of risks involving bonds?
Default Risk Although bond issuer promises to pay an interest to the bondholder, but this interest income is not risk-less unless the investor can ensure that bond issuer will not default their obligation. While US government bond may be treated as free of default risk, this is not true for corporate bonds. Therefore, US Treasuries are used as a benchmark in the bond market. High-yield bonds are classed purely by credit risk. That is, the risk that a debt holder won’t receive the interest payment and principal in full and on time.
