News From Press What is mark to market risk in debt instruments?

What is mark to market risk in debt instruments?

Debt mutual funds have to show notional losses or gains on their debt holdings even if the gains or losses are not actually realised. This is known as markto-market or MTM risk.

ET Jun 23, 2020

1. A debt instrument is issued at a fixed coupon which depends on the market situation at the time of the issue and is paid regularly until maturity.

2. When interest rates fall, the value of the debt securities held will go up, leading to a mark-to-market gain.

3. When interest rates go up, the value of debt securities held will go down, leading to a mark-to– market loss.

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