Interest rate risk is the possibility that a change in general interest rates will cause a decrease in the value of a bond or other fixed rate investment:
When interest rates rise, bond prices fall, and vice versa. This means that the market price of existing bonds is falling to offset the more attractive rates of new bond issues.
Interest rate risk is measured by the duration of a fixed income security, with longer-term bonds having greater price sensitivity to rate changes.
Interest rate risk can be mitigated by diversifying bond maturities or by hedging using interest rate derivatives.