the interest rate on a bond is known as accretion.
the interest rate on a bond is known as accretion.
what is the interest rate on a bond known as?
accretion
also referred to as market risk, all bonds are subject to interest rate risk.









































interest rate changes can affect the value of a bond. if the interest rates fall, then the bond prices rise and if the interest rates rise, bond prices fall. when interest rates rise, bonds are more attractive because investors can earn higher coupon rate, thereby holding period risk may occur. interest rate and bond price have negative correlation. lower fixed-rate bond coupon rates meaning higher interest rate risk and higher fixed-rate bond coupon rates meaning lower interest rate risk.
government bond
to hedge costs on the sale of variable interest rate bonds, which can rise and fall with the market, local governments, such as baltimore, purchased interest rate swaps which exchange a variable interest rate for a fixed interest rate. in a swap deal, when the interest rate rises, the swap seller pays the local government the increased cost on the bond, while when the interest rate falls, the swap seller saves and pays the local government the decreased cost on the bond. the interest rate swap mechanism generally works well; however, between 2007 and 2010 the payments to local governments on their swaps artificially decreased but the cost on their bonds remained at actual market rates. this was because most interest rate swaps are linked to the libor interest rate, while municipal bond rates are linked to the sifma municipal bond index interest rate. during the financial crisis the two benchmark rates decoupled. municipalities continued to pay on their bonds at the actual market sifma rate but were paid on their interest rate swaps at the artificially lower libor rate.
libor scandal