Which risk is associated with fluctuations in interest rates for Treasury securities?

The correct answer is interest-rate risk. This type of risk is specifically linked to the potential for changes in interest rates to impact the value of fixed-income investments, such as Treasury securities. When interest rates rise, the prices of existing bonds tend to fall, which can lead to a decrease in their market value. Conversely, if interest rates fall, existing bonds may rise in value. Since Treasury securities often have a fixed interest payment, their attractiveness can diminish in a rising rate environment because new bonds would likely be issued with higher yields, causing older securities to lose value.

Understanding interest-rate risk is crucial for investors in fixed-income assets, as it can significantly affect investment returns. Unlike credit risk, which relates to the possibility of a borrower defaulting on payments, or market risk, which encompasses a wider array of factors influencing asset prices, interest-rate risk specifically focuses on the variability in bond values due to rate changes. Operational risk does not pertain to market movements but rather involves risks arising from failed internal processes, systems, or external events. Thus, interest-rate risk is the most relevant to fluctuations in interest rates affecting Treasury securities.