Default risk is the possibility that the bond issuer might fail to repay the principal and interest in a timely manner or not pay at all, in which case the investor will need to take legal recourse. If capital safety is your prime concern, choose bonds with highest credit quality. Bonds issued by central and state governments enjoy sovereign guarantee, where the risk of default is nil. Bonds issued by corporates carry default risk, but if you go for bonds with highest credit rating, this risk is lowest. An ‘AAA' rating indicates a high level of creditworthiness and repayment capacity.