🧭 Understanding issuer risk

🧭 Background & Context Issuer risk refers to the danger that the issuer of a financial product does not meet its obligations – for example, does not pay interest or principal amounts, or in extreme cases becomes insolvent. It affects retail investors wherever they are not directly the owner of an asset but instead hold a claim against an institution: bonds, certificates, structured products, ETFs with synthetic replication, money market funds, call money at banks, or insurance products. The significance lies in the fact that investors often believe a product is „safe“ because it relates to an index or a broad market – yet repayment additionally depends on the issuer’s creditworthiness. Issuer risk is therefore an independent risk factor that can act independently of the market development of the underlying asset. 🔍 How it works in detail With a bond, the investor lends money to the issuer and receives interest in return. If the issuer defaults, there …