When interest rates rise, the price of a bond will fall

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This is because they are usually viewed as low-risk assets. In finance, assets that are very risky – like equities – usually attract a high return. Risks associated with bonds While bonds are often safer than other securities, they come with a number of risks. Some of these risks are: Market or interest rate risk: The price of a bond usually moves in the opposite direction to interest rates.


When interest rates rise, the price of a bond will fall. Therefore, when interest rates rise, and you don’t plan to hold the bonds to maturity, it means that you will see a fall in your returns. This is the biggest risk to any fixed south africa business email list asset investment like bonds. Reinvestment risk: The cash flow derived from a financial security is usually assumed to be reinvested and the income from this is known as interest-on-interest.


A key determinant on its amount is the prevailing interest rates. Therefore, the risk here is that the interest rates at which this cash flow is reinvested will fall. This is a risk opposite to the interest rate risk. Timing or call risk: At times, the issuers of the bonds can call or refinance the bonds before the maturity rate. This is often done when the market interest rates decline below the coupon rate.