Each issuance will list its associated risks in the Official Statement. Some statements may include a section called ‘Bondholders Risks’ or similar (for example, see p16 of this document). We encourage all investors to read these sections.
In addition to a bond’s individual credit risk, bonds are subject to three kinds of risk: interest rate risk, market valuations and call risk.
Interest rate risk means that when interest rates rise, bond prices fall. Generally, the longer a bond’s maturity, the more sensitive it is to this risk.
The market value of bonds may fluctuate, and investors who sell their bonds before they mature may earn more or less than their original investment amount due to changes in market conditions, such as interest rates, or changes in the issuer’s financial circumstances.
Call risk is the risk that the issuer will redeem the bonds, fully or partially, before the scheduled maturity date. If a bond is called, investors are paid back their original investment amount and will not earn the interest they may have anticipated in future years. Learn more here. The MSRB and FINRA also provide resources for investors to learn more about the risks involved with investing.