Interest Risk Rate Definition

Learn the definition of interest risk rate and other ETF terminology from the etf.com glossary.

ETF
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Interest Risk Rates

Interest rate risk is the potential loss of value in an investment due to changes in interest rates. This risk is particularly relevant for fixed-income investments, such as bonds, as their prices typically move inversely to interest rates. When interest rates rise, the prices of existing bonds fall, as they are less attractive to investors who can now purchase newly issued bonds with higher yields. ETFs that invest in fixed-income securities, such as bond ETFs, are exposed to interest rate risk. The extent of this risk depends on the duration of the bonds held by the ETF. Bonds with longer maturities are more sensitive to interest rate changes than bonds with shorter maturities.

Related Terms

High-Yield Bond, Treasury Bond, Savings Bond

 

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.