QUICK DEFINITION
Haircut is the percentage reduction applied to the market value of collateral when determining how much can be borrowed against it.
WHY IT MATTERS
Why Haircut matters in bond markets
Higher haircuts reduce leverage and can amplify liquidity pressure when funding conditions tighten.
MARKET CONTEXT
How to think about it
Bond investors use haircut as part of a wider framework that links prices, yields, cash flows, liquidity and risk. The concept should therefore be read together with its related terms rather than as an isolated definition.
Is Haircut important for fixed-income investors?
← Back to the Bond Market Glossary Yes. Higher haircuts reduce leverage and can amplify liquidity pressure when funding conditions tighten.