DEFINITION of 'Interest Rate Risk'
The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities inversely and can be reduced by diversifying (investing in fixedincome securities with different durations) or hedging (e.g. through an interest rate swap).
INVESTOPEDIA EXPLAINS 'Interest Rate Risk'
Interest rate risk affects the value of bonds more directly than stocks, and it is a major risk to all bondholders. As interest rates rise, bond prices fall and vice versa. The rationale is that as interest rates increase, the opportunity cost of holding a bond decreases since investors are able to realize greater yields by switching to other investments that reflect the higher interest rate. For example, a 5% bond is worth more if interest rates decrease since the bondholder receives a fixed rate of return relative to the market, which is offering a lower rate of return as a result of the decrease in rates.

Interest Rate
The amount charged, expressed as a percentage of principal, by ... 
Interest Rate Swap
An agreement between two parties (known as counterparties) where ... 
Bond
A debt investment in which an investor loans money to an entity ... 
Duration
A measure of the sensitivity of the price (the value of principal) ... 
Spread
1. The difference between the bid and the ask price of a security ... 
Modified Duration
A formula that expresses the measurable change in the value of ...

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Options & Futures
Managing Interest Rate Risk

Economics
Forces Behind Interest Rates

Options & Futures
How Interest Rates Affect The U.S. Markets