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Default is a situation where a borrower or issuer fails to meet a required obligation under a debt agreement, most commonly by missing scheduled interest or principal payments. In bond markets, default indicates that the issuer has failed to repay debt as agreed, which may lead to restructuring, legal action, lower recovery for investors, and reduced access to future borrowing.
A derivative is a financial contract whose value is linked to an underlying asset, rate, index, or other benchmark. It allows investors and institutions to hedge risk, gain exposure to price movements, or transfer market risk without directly buying or selling the underlying instrument. Common types of derivatives include futures, options, forwards, and swaps.
Dirty price is the total price a buyer pays for a bond, including both the clean price and the accrued interest accumulated since the last coupon payment. It represents the actual settlement amount in a bond transaction.
A discount bond is a bond that trades below its face value, either at issuance or in the secondary market. This typically occurs when the bond’s coupon rate is lower than prevailing market interest rates or when investors require additional compensation for perceived credit risk. If held to maturity and the issuer does not default, the investor receives the full face value, generating a capital gain equal to the difference between the purchase price and par.
Dividend is a distribution of a company’s profits to its shareholders, typically paid in cash or additional shares on a fixed schedule. Dividends represent a portion of earnings allocated per share and approved by the board of directors, providing investors with recurring income in addition to potential changes in stock price.
A downgrade is a negative revision of an issuer’s, bond’s, or security’s rating or investment assessment. In bond markets, it usually means that credit risk has increased, which can lead to lower bond prices, higher yields, and more expensive borrowing for the issuer.
Duration is a measure of how sensitive a bond’s price is to changes in interest rates. The higher the duration, the more the bond’s price is likely to move when yields rise or fall. Duration helps investors compare interest rate risk across different bonds and bond portfolios.