Downgrade Risk
Definition
What is Downgrade Risk?
The risk that a credit-rating reduction causes a securityA tradable financial claim or ownership interest, such as a share, bond, or fund unit.'s price to fall or become ineligible for some portfolios.
Example in practice
How This Looks in Practice
A pension fundA pool of retirement assets invested on behalf of members or beneficiaries. must sell a bond after it loses investment-grade status.
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Related Terms
Market Risk
The possibility of loss because broad market prices or rates move against an investment.
Risk TermsCredit Risk
The possibility that a borrower or issuer will fail to make promised payments or suffer a downgrade.
Risk TermsInterest-Rate Risk
The possibility that changing market interest rates will reduce an investment's value or income appeal.
MiscellaneousBusiness Day
A day on which relevant financial institutions and markets are open for normal processing.