Reinvestment effect

Reinvestment effect

The impact of a change in interest rates on the reinvestment rate.

Reinvestment Effect

The phenomenon that rising interest rates on bonds mean that the investor will earn more interest over the same amount of time, and is therefore more likely to reinvest in bonds to earn even more. Likewise, falling interest rates mean that the investor will earn less in coupons and he/she will be less inclined to reinvest in bonds.
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