ECB's de Guindos warns of hit to banks from higher rates

BY Reuters | CORPORATE | 09/27/22 09:41 AM EDT

LONDON, Sept 27 (Reuters) - Euro zone banks are set for some pain as the economy slows and higher interest rates land some companies in hot water, the European Central Bank vice-president Luis de Guindos said on Tuesday.

"You have to take into consideration that we're going to have a slowdown of the economy and simultaneously that higher rates will have a clear an impact on the solvency of corporates," de Guindos told an event in London. (Reporting By David Milliken and Marc Jones; Writing by Francesco Canepa in Frankfurt; Editing by Alex Richardson)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. 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.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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