// definition
Reinvestment risk
Replacing income after repayment
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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.