Repudiation

DEFINITION of 'Repudiation'

Disputing the validity of a contract and refusing to honor its terms. In investing, repudiation is most relevant in fixed income securities, particularly sovereign debt. Fixed income instruments are fundamentally contracts where the borrower lends a certain amount of principal in return for payments of interest and principal on a preset schedule. Repudiation occurs if the borrower refuses to honor this contract and stops making the agreed upon payments.

BREAKING DOWN 'Repudiation'

With fixed income instruments it is always possible that the borrower may default, dispute the validity of the contract or otherwise refuse to pay. If the borrower does repudiate the contract, the corresponding investors may lose their entire investment unless they are able to take recourse against the borrower. In the case of sovereign debt, however, there is often not any method of recourse against the borrowing nation.

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