Reinvestment Risk
The risk that coupons and principal must be reinvested at lower rates.
What is Reinvestment Risk?
When rates fall, interest payments and returned principal can only be reinvested at the new, lower yields. Highest for high-coupon bonds and callable bonds; zero-coupon bonds have none, because there is nothing to reinvest until maturity.
Reinvestment Risk: a worked example
A retiree living on a 6% CD that matures when new CDs pay 3% sees their income halved.
More terms in Economics & Financial Reporting
Business Cycle
The recurring pattern of expansion, peak, contraction, and trough.
Leading, Coincident & Lagging Indicators
Data series that move before, with, or after the business cycle.
Deflation vs. Disinflation
Falling prices versus a slowing rate of price increases.
Currency Valuation & Exchange Rates
What one currency buys of another, and who wins when it moves.
Sovereign Debt
Bonds issued by a national government.
Trade Deficit
A country imports more goods and services than it exports.
Income Statement
Revenue, expenses, and profit over a period of time.
Balance Sheet
Assets, liabilities, and equity at a single point in time.