Interest Rate Sensitivity


DEFINITION of 'Interest Rate Sensitivity'

A measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment. Securities that are more sensitive will have greater price fluctuations than those with less sensitivity. This type of sensitivity must be taken into account when selecting a bond or other fixed-income instrument that the investor may sell in the secondary market.

BREAKING DOWN 'Interest Rate Sensitivity'

Generally, the longer the maturity of the asset, the more sensitive the asset will be to changes in interest rates. Changes in interest rates are watched closely by bond and fixed income traders, as the resulting price fluctuations will affect the overall yield of the securities. Investors who understand the concept of duration can immunize their fixed-income portfolios to changes in short-term interest rates.

  1. Interest

    The charge for the privilege of borrowing money, typically expressed ...
  2. Personal Finance

    All financial decisions and activities of an individual or household, ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Repricing Opportunity

    The change in interest rate of an interest-sensitive asset or ...
  5. Negative Gap

    A situation where a bank's interest-sensitive liabilities exceed ...
  6. Interest Sensitive Assets

    Assets held by a bank that are vulnerable to changes in interest ...
Related Articles
  1. Bonds & Fixed Income

    Curbing The Effects Of Inflation

    Your investments suffer when general price levels rise. Learn how you can control the damage with IPSs.
  2. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  3. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  4. Retirement

    All About Inflation

    What causes inflation? How does it affect your investments and standard of living? This tutorial has the answers.
  5. Investing

    The Pros and Cons of High-Yield Bonds

    Junk bonds are more volatile than investment-grade bonds but may provide significant advantages when analyzed in-depth.
  6. Financial Advisors

    Ditching High-Yield Bonds for Plain Vanilla Ones

    In a low-rate environment, it's tempting to go for higher yield bonds. However, you might be better off sticking with the plain vanilla ones.
  7. Bonds & Fixed Income

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  8. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  9. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  10. Investing

    Understanding High Yield Fund Performance

    For exchange traded fund, not all high-yield ETFs are the same. So, we take a look at one high yield investment in particular to set the stage for you.
  1. How can I calculate the hurdle rate in Excel?

    Hurdle rate, or desired rate of return, is the lowest rate of return on an investment or project that would make it an acceptable ... Read Full Answer >>
  2. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of ... Read Full Answer >>
  3. Do hedge funds invest in bonds?

    Hedge funds have the freedom to deploy their capital in virtually any manner. They can use leverage, invest in non-publicly ... Read Full Answer >>
  4. Do mutual funds pay dividends or interest?

    Depending on the type of investments included in the portfolio, mutual funds may pay dividends, interest, or both. Types ... Read Full Answer >>
  5. Can mutual funds only hold bonds?

    While some mutual funds include bonds in addition to other asset types, certain funds, aptly named bond funds, hold only ... Read Full Answer >>
  6. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center