Saw somewhere in the notes that in an upward sloping yield curve, reinvestment risks are higher. My view is that since long term interest rate is trending upward then any cash flow would be reinvested with higher interest rate so reinvestment risk should be lower not higher.
Can someone explain please. Many thanks
Whoever wrote that doesn’t understand the meaning of the word “risk”.
What they meant was that with an upward sloping yield curve you’re more likely to have a lower realized return, which is true.
If the yield curve slopes upward and is unchanged for the life of the bond, then each coupon payment will be reinvested at a rate lower than the original YTM (because its maturity is shorter than the original maturity of the bond), so the reinvestment income will be lower than the original YTM, so the overall realized return will be lower than the original YTM.
thanks for your reply! that clears my question!
My pleasure.
Then my work here is done.