"Interest Rates vs Bonds: Price & Yield Explained"

The article explains the inverse relationships between interest rates, bond prices, and yields, highlighting how rising interest rates lower bond prices and increase yields, while falling rates have the opposite effect.


Understanding the Relationship Between Interest Rates, Bond Prices, and Yields

Interest rates have a significant impact on bond prices and yields. The following table explains how these factors interact:

Factor Effect
Interest Rates Increase Bond prices decrease. Higher interest rates make existing bonds with lower coupon rates less attractive, leading to a decline in their market value.
Interest Rates Decrease Bond prices increase. Lower interest rates make existing bonds with higher coupon rates more attractive, raising their market value.
Bond Prices Decrease Yields increase. As bond prices fall, the yield (coupon payment relative to the price of the bond) becomes higher for investors purchasing bonds at the new lower price.
Bond Prices Increase Yields decrease. When bond prices rise, yields fall because the fixed coupon payment represents a smaller return relative to the higher price paid for the bond.


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  • Bond-investment-tax-guide

  • Bond-rating-importance

  • Bond-risk-and-return-analysis

  • Choosing-bond-fund-or-etf

  • Guide-to-bond-investment-basi

  • Inflation-protected-bonds-gui

  • Interest-rates-impact-on-bonds

  • Short-vs-long-term-bonds

  • Types-of-bonds-explained

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