Bonds Risks
While bonds are safer compared to equities, they are not a completely risk-free investment. These include the following risks: 1. Interest Rate Risk: It has already been established that the price of bonds moves in an inverse relation with interest rates. This means that if interest rates are increased, then the market value of a bond will decline; consequently, sellers of such a bond before its maturity would suffer losses. 2. Credit Risk: The chance that interest or principal payments will not be made because the issuer defaults. For lower-credit-rated issuers, \"junk\" bonds, credit risk is higher, and so are yields to compensate for the increased risk.