A bond portfolio will lose value when interest rates rise. This is an example of what type of risk?

When interest rates rise, the value of existing bonds typically decreases. This phenomenon is attributed to interest rate risk, which reflects the inverse relationship between bond prices and interest rates. When new bonds are issued at higher rates, existing bonds with lower rates become less attractive, leading to a decline in their market value.

Interest rate risk specifically affects fixed-income securities, such as bonds, because their prices fluctuate based on changes in prevailing interest rates. Investors holding a bond portfolio must be aware that as rates increase, the market value of their holdings can drop, resulting in potential losses if those bonds need to be sold before maturity. This principle helps bond investors understand the dynamics of interest rates as part of their investment strategy and risk management.