A gradual decrease in the quality (credit rating, credit quality) of a credit (a security or an issuer) or a credit derivative. It causes continuous decline in the price of a security such as a bond or a derivative contract such as a swap. At the end, a downrating would be triggered (after a period of observation- or putting a credit on a watch list). The probability of credit deterioration is an input that drives the price of a credit (reference asset).
Credit events constitute a substantial deterioration of the creditworthiness of the reference asset.
Credit deterioration is a component of credit risk (the other is a default risk).
It is also known as credit impairment.
