Interest-bearing assets that are intended to be held to maturity do not pass interest rate risk along to variable interest holders. While the fair value of the assets may fluctuate during the holding period due to changes in interest rates, the legal entity and its variable interest holders are unaffected. Instead, the entity receives the periodic interest and principal payments up through and including maturity. Since in this structure interest rate risk is not intended to be passed along to variable interest holders, it can be excluded from evaluation.
If, however, the financing of the entity is structured so that sale of the interest-bearing assets is required in order to satisfy the terms of the financing (e.g., repay borrowings that come due prior to maturity of the assets), then the entity is by design exposed to interest rate risk. This risk is realized upon sale of the assets whose fair value will be affected by changes in interest rates. In this case, interest rate risk must be included in the variability evaluation of the legal entity.