Interest rate risk refers to the potential for losses due to the movement of the risk-free curve, which is largely driven by the central bank policy rate and its expected future path. One might also use a yield curve based on the main banking reference floating rate used in the jurisdiction. When LIBOR was the reference rate, the curve would be derived from LIBOR fixes, short-term interest rate futures and LIBOR swaps. This curve traded relatively close to the governmental yield curve (e.g., U.S. Treasurys), but there was a spread between them. Regardless of which curve is used, changes in the spread between those high-quality curves is dominated by the changes in the level of either curve.
This a great write-up Brian!
Thanks!