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  • September 10, 2021
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Reinvestment Risk

In relation to bonds, it is the risk (a type of interest rate risk) that the reinvestment rate will drop below the bond’s yield. The reinvestment rate will have to be transacted at the interest rate prevailing in the future). In other words, this risk arises when the holder of a coupon-paying bond will not be able to reinvest periodic interest/ coupon payments at a rate equal to or exceeding the bond’s yield to maturity (YTM), computed at the time of purchase. Consequently, the yield attained over the lifetime of the bond may be lower than that expected by the holder.


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