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:
- 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.
- 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 ...
- 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 ...
- 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 ...
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Aug 27, 2012 ... Japan's risk of an economic contraction this quarter has increased as faltering demand from Europe to China drags down exports, ...
- 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, ...
- Contraction Risk: Definition from Answers.com
Contraction Risk The risk of a security shortening in duration due to the acceleration of prepayments.
- 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 ...