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

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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...
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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
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There are essentially 4 risks related to debt securities. Credit risk is related with the possibility of not getting the interest payment on the scheduled date or refund of the principal on maturity. Interest rate is the risk that arise due to the levels of market rates of interest compared with the...
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There are essentially 4 risks related to debt securities. Credit risk is related with the possibility of not getting the interest payment on the scheduled date or refund of the principal on maturity. Interest rate is the risk that arise due to the levels of market rates of interest compared with the interest paid for the debt security. Liquidity risk is the risk related to the possibility of not being able to sell the debt security, this can arise from credit risk as well. Reinvestment risk arises from the possibility that when a debt security matures, its reinvestment may be at a lower rate of interest than what the investor is currently receiving. read less
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There are various risk like Credit risk, Interest rate risk, Liquidity risk and Reinvestment risk
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