Interest rate risk

When rates rise, the price of an existing bond falls

In detail

Interest rate risk is the price of a bond changing as market rates move. When rates rise, newly issued bonds pay more interest, so an older bond only sells if its price drops. When rates fall, existing bonds become worth more. Hold to maturity and the face value still comes back, so this movement matters mainly if you sell early.

Example

Hold a bond with a 1% coupon while market rates go to 2%, and its price slips below face value.

Related terms

Duration Yield to maturity Bond Why bond prices fall when rates rise

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For learning, not investment advice. Decisions are your own.