Inflation Risk

This is the uncertainlty about whether our guranteed return from the bond will keep up with inflation.

Lets assume that we hold a bond for the next 5 years (until maturity) which has a yield to maturity of 4%
What if inflation over the next 5 years unexpectedly increases at an annual rate of 5%
Although our 4% return from the bond is guaranteed the value of the principal (when returned at maturity) will not keep up with inflation therfore creating a capital loss.