Market Analysis

Provided by BlackRock®

Although bonds generally present less short-term risk and volatility than stocks, the bond market is volatile and investing in bond funds involves interest rate risk; as interest rates rise, bond prices usually fall, and vice versa. This effect is more pronounced for longer-term securities. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Bond funds also entail issuer and counterparty credit risk, and the risk of default (the risk that an issuer or counterparty will be unable to make income or principal payments). Additionally, bond funds and short-term investments generally involve greater inflation risk than stocks, since investment returns may not keep up with increases in the prices of goods and services. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.