What risks are involved in debt market?

Debt instruments are exposed to different types of risks. The first one is default risk or
credit risk, which refers to the risk of inability of the issuer to make prompt payment of the
interest and the principal amount. The risk emerging from an adverse change in the rate of
interest prevalent in the market so as to affect the yield on the existing instrument is called
Interest Rate risk. The price risk is the risk arising from the possibility of not being able to
receive the expected market price of the debt instrument, due to an adverse movement in
the price. There is also a risk which arises from the failure or the inability of the issuer to
deliver either the promised security or the sales price at the time of settlement which is
known as Counter Party risk.