The Basics of Interest Rate Risk

Unlike with individual stocks, whose values can soar or plunge depending on the latest headlines, the payoffs from investing in bonds tend to be more predictable. Most bonds offer a set of periodic interest payments, with the initial principal returned when the bond matures. But that doesn’t mean that bonds—even bonds issued by the US government—are risk-free. Since (for typical bonds) the payments are set in stone when the bond is first issued, changes in interest rates can dramatically affect how much these payments are worth.

Topics: Blog Risk Bonds Duration Interest Rates