New Delhi, Nov. 4 -- In the nation's rapidly evolving debt market, clarity on the understanding of the probability of default (PD) is critical for every investor aspiring to invest in bonds. Whether you are investing in government securities, corporate bonds, or high-yield debentures, PD can help you assess the true risk of a borrower.

To put it simply, the probability of default represents the likelihood, expressed as a percentage, that a borrower will fail to meet their debt obligations. It basically measures credit risk and influences both interest rates and bond pricing.

For example, companies such as DHFL (2019), IL&FS (2018) witnessed their PDs rise before defaults became public. This clearly establishes PD's role as an early warn...