What does the concept of "unknown risk" refer to in bond investing?

The concept of "unknown risk" in bond investing refers to risks that may not be identified or understood. This encompasses situations where investors face uncertainties that they cannot predict or analyze, often due to a lack of information or unforeseen market conditions. Unknown risks can arise from macroeconomic factors, regulatory changes, or sudden shifts in investor sentiment, which can affect bond prices and yields in ways that are not readily apparent.

By recognizing that these risks exist beyond those that can be measured or predicted, investors can better prepare for potential volatility in their portfolios. This understanding reinforces the importance of thorough due diligence and continuous monitoring of market conditions, as unknown risks can lead to significant impacts on investment performance.