INTEREST RATE RISK

The interest rate risk is the risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the YIELD CURVE (Encyclopedia), or in any other iINTEREST RATE relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixed-income securities with different durations) or hedging (such as through an INTEREST RATE SWAP).