If you buy a bond and hold it until maturity, then you really
wouldn't feel any interest-rate risk. The risk only becomes real
if you hold a bond which you intend to sell before it matures.
This is why the yield curve slopes upward, generally: to
encourage you to buy bonds which have a longer maturity, even if
you plan to get your money out earlier. In this sense it is a
type of risk premium. A bit more on that. Suppose you want to
invest your savings for a couple of years, and see that you
could buy government bonds with a maturity of 2 years which have
an implied yield of 2%. This is appealing, since you will
definitely (barring a government default) have your savings back
intact at the end of year 2. Now your broker tells you that the
10-year government bonds are yielding 3%, "so why don't you buy
the 10-year bond, get the extra 1% interest for a couple of
years, then sell the bonds back into the market?" he suggests.
Now you need to have the 'interest-rate risk here!' alarm bells
ringing. Let's walk throu