#credit-enhancement #fixed-income
There are two primary types of credit enhancements: internal and external. Internal credit enhancement relies on structural features regarding the bond issue. External credit enhancement refers to financial guarantees received from a third party, often called a financial guarantor.
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Credit enhancementsrefer to a variety of provisions that can be used to reduce the credit risk of a bond issue. Thus, they increase the issue’s credit quality and decrease the bond’s yield. Credit enhancements are very often used when creating ABS.
<span>There are two primary types of credit enhancements: internal and external. Internal credit enhancement relies on structural features regarding the bond issue. External credit enhancement refers to financial guarantees received from a third party, often called a financial guarantor. We describe each type in the following sections.
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