Bonds are often seen as a steady part of a portfolio, but they carry risks that are worth understanding before you invest.
Credit risk
This is the risk that the borrower does not pay interest or principal on time. Government securities generally carry less credit risk than corporate bonds, and lower-rated corporate bonds carry more.
Interest-rate risk
When interest rates rise, the prices of existing bonds generally fall, and the reverse is also true. Longer-maturity bonds tend to be more sensitive to rate changes.
Liquidity risk
Not every bond can be sold quickly at a fair price. Some trade rarely, so selling before maturity may mean accepting a lower price.
Yield and risk go together
A higher advertised yield usually reflects higher risk. It is worth understanding why a bond offers more before you decide it is attractive.
Fixed-income investments are subject to credit, interest-rate and liquidity risks. This article is general education and is not personalised financial advice.
Important information
This article is for general education only. It does not consider your personal objectives, financial situation or needs, and is not investment, tax or legal advice. Investments are subject to market risks. Read our risk disclosures.