An uncovered debt instrument (unsecured debt instrument) is a type of fixed-income instrument that is not backed by collateral. It is backed only by the creditworthiness of the issuer (issuing entity). Unlike secured debt instruments, which depend on the collateral posted, unsecured instruments lack an additional layer of protection. However, the higher risk involved entails a bigger risk premium, and consequently a higher potential return.
Unsecured debt instruments involve a certain form of uncovered debt/ unsecured debt– any type of debt or general obligation that is not secured or protected by a guarantor, or collateralized by a lien on specific assets of the borrower for any case of a bankruptcy or liquidation or inability to meet the terms for repayment and settlement.
The main examples of uncovered/ unsecured debt instruments are:
