Credit market participants use two types of default probabilities: actual probabilities of default (APDs) and so-called market-implied risk-neutral probabilities of default (RNPDs). APDs represent measures of likely default in the real world; these are implicit in assessments of credit-worthiness by rating agencies. Market-implied RNPDs are inferred from observed bond yields. Since a credit-sensitive security's yield spread compensates investors for expected actual default losses and also pays a risk premium, an RNPD must reflect information contained in its APD counterpart and also a risk premium.
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