What is the meaning of basis risk?

basis risk is the risk to a holder of financial instruments that a change in prevailing interest rates will not affect the prices of or yields on similar instruments in exactly equal amounts. For example, an increase in prevailing interest rates might raise 3-month U. S. Treasury yields by 100 basis points while 3-month certificate of deposit yields go up by only 85 basis points. One of the four primary components of interest rate risk. Sometimes called spread risk.