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.


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.

  1. Commercial Paper

    Commercial paper is an unsecured debt instrument issued typically ...
  2. Short-Term Paper

    Financial instruments typically with original maturities of less ...
  3. Tax-Exempt Commercial Paper

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

    High-quality securities that are assumed to be risk free, or ...
  5. Paper Money

    The physical notes or currency of a country that is used as a ...
  6. Government Paper

    Debt securities that are issued or guaranteed by a sovereign ...
Related Articles
  1. Trading

    Pros And Cons of Paper Trading

    Most market novices should try paper trading for a while, despite key drawbacks.
  2. Tech

    Is the ICO Whitepaper Dead?

    As more and more cryptocurrencies enter the market, the template of the white paper-the document touting the benefits of a new product-has changed.
  3. Investing

    Five Paper Companies Licensed To Print Money

    Here's a sector that significantly outperformed the broader market year to date.
  4. 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 ...
  5. Financial Advisor

    Money Market Mayhem: The Reserve Fund Meltdown

    This event serves as a stark reminder to investors about understanding their portfolios.
  6. Investing

    Fixed-income trader: job description and salary

    Learn about the skill requirements and average salary of a fixed income trader, along with the necessary licenses and daily activities.
  7. Taxes

    Panama Papers: Searchable Database of All 214,000 Parties Now Live

    Prepare for global mayhem.
  8. Investing

    Future CEO? Get Your Start In Fixed Income

    Discover why working in fixed income can be your ticket to the highest professional goals you've set for yourself.
  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. Which financial instruments have par values?

    Understand the difference between short-term investments and marketable equity securities, and learn the importance of short-term ... Read Answer >>
  3. How does inflation affect a company's short-term investments?

    Discover the effect of inflation on short term investments made by corporations. These are designed to be safe and liquid ... Read Answer >>
  4. What are some examples of money market funds?

    Learn more about different types of money market mutual funds, including those that invest in government paper versus commercial ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  3. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  6. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
Trading Center