Risk & returns
Interest-rate risk is sensitivity to changes in market rates and discount rates. Fixed-rate bonds, indebted companies and long-dated cash flows can be especially affected.
Make it click
A fixed rental contract looks less attractive when new contracts offer more and more attractive when new rates fall. Its price adjusts to compete.
Now put that into markets
Bond prices generally move opposite yields, while duration approximates sensitivity for small changes. Companies face financing and valuation effects.
Maturity, coupon, cash-flow timing and embedded options shape bond sensitivity. Yield-curve moves need not be parallel.
Inspect duration, repricing dates, debt maturity and hedges. Match the rate benchmark and currency to the exposure.
Duration is a local approximation and credit spreads can move simultaneously. Floating-rate exposure reduces some price sensitivity but changes cash-flow risk.
Takeaway
