Bonds & rates
Interest-rate risk
The risk that rising interest rates reduce the market value of bonds you already hold.
How it works
When rates rise, new bonds pay more, so existing bonds with lower coupons must fall in price until their yields match. The longer the duration, the larger the fall.
Held to maturity, you still receive every promised payment. The loss is real only if you sell, or if you hold a fund that must be marked to market.
Where it misleads people
A bond fund never matures. Unlike an individual bond, there is no date on which you are made whole, so a rate rise is a loss the fund has to earn back.
Related terms
- DurationHow much a bond’s price moves when interest rates change, expressed in years.
- BondA loan you make to a government or company, which pays you interest and returns your money on a set date.
- Yield curveA chart of government bond yields across maturities, from months to decades.
- Bond fundA fund holding many bonds, offering diversification but no fixed maturity date.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.