Interest Rate Risk

Glossary

Banking

Interest Rate Risk

Interest-rate risk, also known as market risk, is the risk bond investors run from a rise in interest rates. Bond prices move inversely to yields and interest rates, so a rise in interest rates causes the price of bonds to fall as their yields adjust for the changed rate environment. Another form of interest-rate risk is created for borrowers of floating-rate debt when interest rates rise. This will make debt service more expensive at the next reset.

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