What describes the interest rate risk of a bond?
A bond is essentially a loan made by investors to a company or government in exchange for a promise of repayment of the loan, with interest. All bonds that pay interest are subject to interest rate risk, which is primarily defined by the bond’s interest rate and maturity date.Bonds and Interest RatesBonds and interest rates have an inverse relationship, meaning that when interest rates rise, bond prices fall, and when interest rates fall, bond prices rise.Interest Rate RiskInterest rate risk is the risk that an investment’s value will decline if interest rates rise.Bond MaturitiesBonds with longer maturities generally have higher interest rate risk.
