Investing term

What is Interest-rate risk?

The risk that rising interest rates push existing bond prices down, forcing a holder who sells before maturity to take a loss.

Interest-rate risk is the danger that rising rates push the market price of existing bonds down. New bonds get issued at the higher rate, so your older, lower-coupon bond becomes less attractive and trades for less. It only bites if you sell before maturity — hold to maturity and you still get face value back — and it hits long-duration bonds hardest.

For example

You own a 3% bond and rates jump to 5%; nobody wants your bond at full price, so its market value drops until its effective yield matches the new 5%.

Interest-rate risk is taught hands-on in Stage 19 — Beyond Stocks.

See the lesson →

Related terms

ASMLDutch semiconductor-equipment company that makes the EUV lithography machines every advanced chip is manufactured on — a global monopoly with no US peer.Bond ladderA portfolio of bonds with staggered maturities — one matures every year (or every few years) so cash continuously becomes available.CryptocurrencyDigital assets recorded on a blockchain — Bitcoin, Ethereum, etc. Highly volatile and not backed by cash flows or governments.Currency hedgingAn overlay used by some international ETFs to remove the effect of currency moves, so you get the foreign stock return in your home currency.
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