Understanding Bond Risks

While bonds are generally considered safer than stocks, they still carry various risks that investors should understand.

Types of Bond Risks

Credit Risk

The risk that the bond issuer may default on payments. Sovereign bonds from stable governments carry lower credit risk.

Interest Rate Risk

Bond prices move inversely to interest rates. When rates rise, existing bond prices fall.

Currency Risk

For international bonds, changes in exchange rates can affect returns.

Inflation Risk

If inflation exceeds the coupon rate, real returns become negative.

Liquidity Risk

Some bonds may be difficult to sell before maturity.

Risk Mitigation Strategies