Final answer:
Treasury bonds are the least sensitive to interest rate risk because they have the backing of the federal government, contrasted with municipal and corporate bonds, which offer higher interest rates to offset greater default risks.
Step-by-step explanation:
The bond type that is the least sensitive to interest rate risk is the Treasury bond. Treasury bonds are backed by the federal government, making them virtually default-risk-free and thus less sensitive to changes in market interest rates compared to other types of bonds. It is important to note that bonds with longer durations and those without coupon payments, such as zero-coupon bonds, are generally more sensitive to interest rate changes. Municipal bonds and corporate bonds, especially those paying higher interest rates to compensate for higher risk, also tend to be more sensitive to interest rate risk compared to Treasury bonds.