Why bond prices fall when interest rates rise
In short: Understand the inverse relationship between debt instruments and market rates. This tutorial explains how these movements shape your personal investments and provide a window into the global economy.
When governments or corporations borrow money by selling bonds, the price of those existing bonds reacts predictably to changes in interest rates. Because bond prices move inversely to these rates, a rise in market interest makes older bonds with lower yields less attractive, causing their market value to drop.
Mastering this mechanic is essential for navigating capital markets. It serves as a foundational concept for understanding how the broader global economy responds to shifting monetary policies.
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Sources
- Summary by Intellect · source: Relationship between bond prices and interest rates | Finance & Capital Markets | Khan Academy
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