If a U.S treasury bond is considered risk free by virtue of the government's backing, what is the risk? I read there is risk associated with interest rates.
What does that mean? What is the relationship with interest rates to bonds where risk is concerned? Anything at all on this subject will help. I can't find anywhere to find this information.
This is a complex area, but the simple explanation is that if interest rates go up, then bonds you hold at the old interest rate lose value.
If you have a bond that pays 3%, and new bonds pay 4%, people will want to buy the 4% bond. The only way you can get them to buy your 3% bond is to lower the price of the bond by about 1%, which has the effect of making your bond pay 4% also.
There is essentially no interest rate risk if you hold bonds to maturity, since you will always get the full value that way.
http://www.investopedia.com/terms/i/inte…
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