<Li> Fixed rate bonds are subject to interest rate risk, meaning that their market prices will decrease in value when the generally prevailing interest rates rise . Since the payments are fixed, a decrease in the market price of the bond means an increase in its yield . When the market interest rate rises, the market price of bonds will fall, reflecting investors' ability to get a higher interest rate on their money elsewhere--perhaps by purchasing a newly issued bond that already features the newly higher interest rate . This does not affect the interest payments to the bondholder, so long - term investors who want a specific amount at the maturity date do not need to worry about price swings in their bonds and do not suffer from interest rate risk . </Li> <P> Bonds are also subject to various other risks such as call and prepayment risk, credit risk, reinvestment risk, liquidity risk, event risk, exchange rate risk, volatility risk, inflation risk, sovereign risk and yield curve risk . Again, some of these will only affect certain classes of investors . </P> <P> Price changes in a bond will immediately affect mutual funds that hold these bonds . If the value of the bonds in their trading portfolio falls, the value of the portfolio also falls . This can be damaging for professional investors such as banks, insurance companies, pension funds and asset managers (irrespective of whether the value is immediately "marked to market" or not). If there is any chance a holder of individual bonds may need to sell their bonds and "cash out", interest rate risk could become a real problem (conversely, bonds' market prices would increase if the prevailing interest rate were to drop, as it did from 2001 through 2003 . One way to quantify the interest rate risk on a bond is in terms of its duration . Efforts to control this risk are called immunization or hedging . </P> <Ul> <Li> Bond prices can become volatile depending on the credit rating of the issuer--for instance if the credit rating agencies like Standard & Poor's and Moody's upgrade or downgrade the credit rating of the issuer . An unanticipated downgrade will cause the market price of the bond to fall . As with interest rate risk, this risk does not affect the bond's interest payments (provided the issuer does not actually default), but puts at risk the market price, which affects mutual funds holding these bonds, and holders of individual bonds who may have to sell them . </Li> <Li> A company's bondholders may lose much or all their money if the company goes bankrupt . Under the laws of many countries (including the United States and Canada), bondholders are in line to receive the proceeds of the sale of the assets of a liquidated company ahead of some other creditors . Bank lenders, deposit holders (in the case of a deposit taking institution such as a bank) and trade creditors may take precedence . </Li> </Ul>

A type of bond that is unsecured and gives bondholders a claim