Fixed income Securities Risk
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| Credit Risk | possibility that principal or interest will not be paid.
Credit risk is usually measured against US Treasuries, which are considered to have none.
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| Interest Rate risk | Possibility that increase in general level of interest rates will drive down prices of existing fixed-income investments.
Long-term fixed income securities have more of this risk than those with shorter maturities.
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| Inflationary (Purchasing Power risk) | Rise in general level of prices reduces the value of fixed payments.
Some debt investors attempt to reduce this risk in their portfolios through equity investments or investments in gold.
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| Call Risk | Bonds are more likely to be called when rated have dropped, forcing reinvestment of principal at low rates.
Many bond issues are callable.
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| Prepayment risk | Possibility that homeowners will repay mortgages more quickly than expected when interest rates fail.
This risk is present in mortgage-backed securities and CMOs.
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Created by:
coderman
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