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