22.7 Lessons learnt

What have we learnt?

Even though bonds are often considered being low risk, they still have risks, the most common are:

  • Interest risk caused by movements in the market is driven by offer and demand. High offer means lower prices and higher yield and vice versa higher demand means higher prices and lower yield.
  • Debtors risk, the risk you accept when purchasing a bond in return for an interest payment.
  • Reinvestment risk as the interest changes daily, the effective yield will differ from the actual yield.
  • Ratings provided by rating agencies can give you an indication about the solvability of bonds.