In some web sites I see listed various "default rates" for different types of bonds, AAA, AA+, etc.

Are those default rates per year, or over the life of the bond?


I am not entirely sure if you are asking about

  1. Probability of default
  2. Default ratios of rating classes

I will just try to elaborate on above:

  1. Ratings are tied to the likelihood of the company going default, or the Probability of default (PD). PD is exponential with AAA having a PD in the ballpark of 0.01% (or similar) and C being maybe 80%. PD is usually expressed as the probability of default within 12 months. So a PD of 1% would mean that there is a 1% chance that the company will default within 1 year.

  2. Default ratios will relate to how many companies in each rating class that will actually default. This will be in percentage, not related to periods.

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