In trading, what is the associated risk of holding fixed-rate bonds when interest rates rise?

Holding fixed-rate bonds when interest rates rise presents the risk of potential losses for the bondholder due to the inverse relationship between interest rates and bond prices. When interest rates go up, newly issued bonds with higher yields become more attractive to investors, causing the prices of existing fixed-rate bonds to decline. This decrease in bond value occurs because the fixed payments on existing bonds are less appealing compared to the new bonds that offer higher returns. As a result, if a bondholder wants to sell their fixed-rate bonds in a rising interest rate environment, they may have to do so at a loss, as the market price of their bonds will be lower than their original purchase price.

This understanding is essential for investors to manage risk and make informed decisions about their fixed-income portfolios.