What are the different types of risks with regard to debt securities?

There are mainly two types of risks associated with debt securities. (1) - Interest Rate Risk. As there is an inverse relationship between the rates and debt securities price movement, the interest rates play a very important role here. In a tightening cycle (rates going up), the debt securities stand to register a capital loss as an investor can easily park his funds in a variable deposit or other suitable investments versus the bonds, which have fixed coupon rate, would tend to lose some of the market value. It is more prominent in the sovereign debt. (2) Credit Risk. This usually applies to corporate bonds as the borrowers are not as strong as the government, hence the credit ratings downgrade could negatively affect the price of the debt instrument. In any case both these primary risks apply to all debt securities as we have seen many third world countries defaulting on their sovereign debt due to international ratings downgrade with limited or no rise in their respective rates. We have also experienced corporate bonds losing value due to rate hike. There are other systematic and unsystematic risks associated with debt securities that I have seen in my global wealth management career of almost 4 decades. To learn more, please contact me. read less