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Interest Rate Risk

Interest Rate Risk – Market Interest Rate and Bond Prices

You may have noticed articles in the media about investors “chasing yield,” the so-called “bond bubble,” or predictions about declines in bond prices. some of these warnings about a drop in bond prices relate to the potential for a rise in interest rates. Interest rate risk is common to all bonds, particularly bonds with a fixed rate coupon, even u.s. treasury bonds. (Many bonds pay a fixed rate of interest throughout their term; interest payments are called coupon payments, and the interest rate is called the coupon rate.)

The purpose of this Investor Bulletin is to provide investors with a better understanding of the relationship among market interest rates, bond prices, and yield to maturity of treasury bonds, in particular, although many of the concepts discussed below generally apply to other types of bonds as well. this Investor Bulletin is a companion piece to our Investor Bulletins on Corporate Bonds, High-Yield Bonds, and Municipal Bonds. For a basic explanation of how bonds operate and their terminology, please see our Investor Bulletin on Corporate Bonds.

 

Click here to download the Investor Bulletin on Interest Rate Risk (PDF, opens in new window)

 

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Antonio Caldas

Program/Project/Risk manager with 15+ years mix-industry, with a particular emphasis in Banking & Financial Services. Active in risk management, market risk control, front office risk management, product control, change and transformation management, business analysis and business process improvement for global capital markets and investment banking, covering a multiple range of asset classes.

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