Reinvestment risk is the risk that the proceeds from the payment of principal and interest, which have to be reinvested at a lower rate than the original investment.
Call features affect an investor's reinvestment risk because corporations typically call their bonds in a declining interest rate environment. This allows them to finance their operations at a cheaper rate, but the investor also has to take those proceeds and invest them at lower rates.
Amortizing securities have even greater reinvestment risk. Since the investor is receiving both interest and principle payments each month, they have to continue to invest a greater amount of proceeds than with a regular type of bond. Also, the investor is exposed to prepayment risk as rates decline because mortgage and credit card holders can refinance their debt at lower levels.
Zero coupon bonds have no reinvestment risk because there are no coupon payments made to the investor. Because of the lower coupon rate, however, zeros expose the investor to a higher interest rate risk.
Because amortizing securities pay part of their principal with regular interest payments, investors receive the maturity value in installments in a current period. Non-amortizing securities make their payment at a later maturity date. If prevailing interest rates are declining, holders of amortizing securities have to reinvest their coupons and portion of principal at a lower rate. Meanwhile, the non-amortizing securities offer the holder some protection by holding the principal payment off until a later date. This enables the non-amortizing holder to maintain a higher rate at a longer period of time and reduces the reinvestment risk for a portion of his or her holdings