Interest Rate Risk
The risk that changes in interest rates reduce the value of an investment, especially bonds.
In plain English
The risk that changes in interest rates reduce the value of an investment, especially bonds.
When rates rise, existing bonds paying lower coupons lose value. That is interest rate risk. Long-term bonds are hit hardest.
Silicon Valley Bank's 2023 collapse was partly caused by large losses on bonds bought before rates rose. For currency traders, rate surprises also change swap costs and carry.
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