I

Glossary · PSX term

Interest-rate risk.

Interest-rate risk is the danger that rising rates reduce the value of an investment, especially bonds.

Definition

When rates rise, existing bonds with lower coupons become less attractive, so their prices fall. Longer-maturity bonds carry more interest-rate risk than short-term ones.

Worked example

A long-term PIB can lose market value if rates rise after you bought it.

Related on PSX Clarity

Yield to maturity

Pakistan Investment Bonds (PIBs)

Interest-rate sensitivity

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