What type of risk is not clearly defined or understood in bond investing?

In the context of bond investing, unknown risk represents the type of risk that is not clearly defined or understood. This encompasses various uncertainties that investors may face, such as unforeseen events or market shifts that can impact the performance of bonds but are difficult to quantify or predict. This risk goes beyond the established categories of risks, such as liquidity risk, default risk, and currency risk, which are more commonly identified and can often be assessed through specific metrics and analyses.

Liquidity risk relates to the inability to buy or sell a bond quickly without affecting its price, while default risk pertains to the potential that the issuer of the bond may fail to make the required payments. Currency risk is associated with fluctuations in exchange rates that can impact international investments. Each of these risks has clear definitions and established methods for evaluation. In contrast, unknown risk lacks such clarity, making it a more abstract concern for investors in bond markets.