It is the one assumed by the holder of a fixed-income security, as a consequence of the effect that the evolution of interest rates may have when re-investing the flows derived from their investment. It is always produced by the cash flows generated, and also by the repayment of the principal or by the market price of the asset, in the event that the time horizon of the investment does not coincide with the expiration date of the latter. Variations in interest rates will produce a greater or lesser profitability in the reinvestment of cash flows, compared to what was initially foreseen; on the other hand, at the maturity of the asset, if it is necessary to reinvest the capital, the level of interest rates will determine a higher or lower return on investment in the last period. In zero coupon bonds there is no reinvestment risk because a single flow is received at maturity.
Origin: CNMV
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