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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.
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