Bad Paper

DEFINITION of 'Bad Paper'

Unsecured short-term fixed income instrument that is issued either by a corporation, city, state or country, that has a high probability of defaulting on their promissory notes. Since bad paper is not backed by collateral, it is sold at a discount to the equivalent collateral-backed fixed-income securities. However, in contrast to regular commercial paper which typically has a strong rating from a credit agency, bad paper does not possess this quality.

BREAKING DOWN 'Bad Paper'

Bad paper is risky. Not only is it not backed by collateral, it is also issued by an entity that could potentially fail to meets its obligations. Bad-paper investors take on high levels of risk and, as a result, would be offered an attractive interest rate as proper compensation.

RELATED TERMS
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  2. Short-Term Paper

    Financial instruments typically with original maturities of less ...
  3. Paper Dealer

    A market maker that buys and sells extremely short-term corporate ...
  4. Tax-Exempt Commercial Paper

    An unsecured short-term loan, usually issued to finance short-term ...
  5. Fine Paper

    High-quality securities that are assumed to be risk free, or ...
  6. Paper Trade

    Using simulated trading to practice buying and selling securities ...
Related Articles
  1. Managing Wealth

    Introduction To Commercial Paper

    Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money.
  2. Markets

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  3. Investing

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.
  4. Trading

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  5. Managing Wealth

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  6. Personal Finance

    What is an Unsecured Loan?

    An unsecured loan is based on the creditworthiness of the borrower, and has no collateral securing the loan.
  7. Markets

    What are Cash Equivalents?

    Cash equivalents are money market instruments.
  8. Investing

    Understanding Bad Debt

    Bad debt is money a company or lender is owed, but is unable to collect.
  9. Markets

    PIMCO Report: The Case for High Yield Bonds in 2016

    Discover how PIMCO's 2015 white paper strays from the company's mission to identify investment opportunities and risks for its clients.
  10. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
RELATED FAQS
  1. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
  2. What happens when a company defaults on its commercial paper obligations?

    Read about the possible consequences of a large corporation defaulting on its commercial paper obligations even though the ... Read Answer >>
  3. How can retail investors invest in commercial paper?

    Find out how individual retail investors can purchase short-term commercial paper, but why it rarely makes good investment ... Read Answer >>
  4. Can retail investors buy commercial paper?

    Find out whether retail investors buy commercial paper, and learn about the restrictions that often prevent individual investors ... Read Answer >>
  5. What are some examples of securities that can be found in a money market fund?

    Learn about examples of securities found in money market accounts. These securities need to be safe, liquid and of short-term ... Read Answer >>
  6. What is the difference between secured and unsecured debt?

    Understand the difference between secured and unsecured debt and how the reliability and trustworthiness of the issuing entity ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center