// definition
Reinvestment risk
Replacing income after repayment
Short definition
The risk of reinvesting repaid capital or income on less rewarding terms. Early repayment can shorten the life of an attractive loan; future income then depends on the reinvestment delay, new rate, fees and risk accepted.
risk atlas
Knowledge map
Intuition
Repayment returns liquidity to the lender, who must find a new use for it. The old loan’s rate stops earning income.
Formula
period income = interest before repayment + income on reinvested capital + any premiumWhy it matters now
Refinancing private loans at narrower spreads makes this risk visible even when the benchmark rate is unchanged.
Related analyses
- Private credit: when borrowers find a cheaper exitMercer, recurring income and the use of returned capital.
Primary sources
- BlackRock Credit Strategies Fund, 2024 prospectusPrepayment Risk and Reinvestment Risk, pages 13 and 88.