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contraction risk

Potential loss of return resulting from the prepayment of a debt security. Common in mortgage-backed securities where future interest and principal payments are used to predict the return. Prepayment of a debt security reduces the duration of the loan, thus reducing the future interest earned.

Related information about contraction risk:
  1. Contraction Risk Definition | Investopedia
    The risk faced by the holder of a fixed income security when borrowers increase the rate at which they pay back the maturity value of the fixed income security.
     
  2. Extension Risk Definition | Investopedia
    Contraction Risk. The risk faced ... Duration. A measure of the ... Fannie Mae - Federal National ... A ... Interest Rate. The amount ... Mortgage-Backed Security ...
     
  3. Contraction Risk - Financial Dictionary - The Free Dictionary
    The risk that the duration of a debt security will decline because of prepayment. Duration is the length of time it takes to receive the present value of future ...
     
  4. Deflation Deepens as Japan Contraction Risk Intensifies: Economy ...
    Aug 31, 2012 ... Japan's consumer prices slid at a faster pace in July and industrial production unexpectedly slumped, raising the danger that the world's ...
     
  5. Japan Contraction Risk Rises on Faltering Global Demand ...
    Aug 27, 2012 ... Japan's risk of an economic contraction this quarter has increased as faltering demand from Europe to China drags down exports, ...
     
  6. Risks of Investing in Bonds
    Contraction risk For mortgage-related securities, the risk that declining interest rates will accelerate the assumed prepayment speeds of mortgage loans, ...
     
  7. Contraction Risk: Definition from Answers.com
    Contraction Risk The risk of a security shortening in duration due to the acceleration of prepayments.
     
  8. What is contraction risk? definition and meaning
    Definition of contraction risk: Potential loss of return resulting from the prepayment of a debt security. Common in mortgage-backed securities where future ...