korkoherkkyyttä

Korkoherkkyys, often translated as interest rate sensitivity, is a financial concept that describes how the value of an asset, particularly a bond, changes in response to fluctuations in prevailing interest rates. When market interest rates rise, newly issued bonds offer higher yields. This makes older bonds with lower fixed interest rates less attractive, causing their market price to fall. Conversely, if market interest rates decline, older bonds with higher fixed interest rates become more desirable, leading to an increase in their market price.

The degree of korkoherkkyys is primarily determined by a bond's maturity and its coupon rate. Bonds with longer maturities are generally more sensitive to interest rate changes than those with shorter maturities. This is because the impact of a rate change is compounded over a longer period. Similarly, bonds with lower coupon rates (the annual interest payment as a percentage of the bond's face value) tend to be more sensitive to interest rate movements than those with higher coupon rates. This is because a larger portion of the investor's return comes from the final principal repayment, which is more affected by discounting at a new interest rate.

Understanding korkoherkkyys is crucial for investors, especially those managing bond portfolios. It helps in assessing the potential risk and return associated with different fixed-income investments. Strategies like duration matching, which aims to align the interest rate sensitivity of assets with liabilities, often rely on a deep understanding of this principle. Investors can use this concept to make informed decisions about when to buy, sell, or hold bonds in their portfolios, depending on their outlook for future interest rate movements.