When interest rates change, the price of a conventional fixed income security swings in the other way. A fixed income security's price will decline when interest rates decline (rise).
If an investor intends
to retain fixed income security until it matures, changes in its price before
that date are unimportant; but, if that investor must sell the security before
it matures, an increase in interest rates will result in the realization of a
capital loss. The main risk faced by an investor in the fixed income market is
known as market risk, often known as interest rate risk.
The yields on government
securities are typically used to gauge the market. The majority of other rates
are given as spreads off the relevant treasury yields and are compared to the
treasury levels. Because all fixed income instruments' yields are
interconnected, changes in treasury rates have an impact on their pricing.
The precise size of the
price reaction for each security will vary depending on the security's coupon,
maturity, and embedded options, among other factors.
No comments:
Post a Comment