Why Do Bond Prices Fall When Interest Rates Rise?
Redactie Financial World News · Educatieve uitleg · Hoe we rendementen bronnen
New bonds then offer higher coupons, so old lower-coupon bonds must cheapen until their yield matches the market.
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Why Do Bond Prices Fall When Interest Rates Rise — the mechanics
It is arbitrage, not a conspiracy. If you can buy a new 5% bond, you will not pay par for an old 2% bond of the same maturity. The old bond’s price drops until its YTM is competitive.
New issues pay the new higher coupon. Old bonds still pay the old coupon. Buyers only take the old bond at a lower price. That lower price is the ‘fall’.
Duration scales it. Convexity bends it. A 50bp rise is not twice a 25bp rise on a long bond — it is a bit less painful than duration alone, for option-free government paper.
Rates can rise because growth is strong or because inflation is unwelcome. The bond does not care about the editorial. It cares about the discount rate.
Official sources (International guides)
Primary statistics and prospectuses for International guides are published by the issuer, not by this newsroom. The labelled links at the end of this page go to those official sites (DMO, TreasuryDirect, Finanzagentur, MEF, AFT, SNB or ECB as relevant).
Our live board is a teaching overlay: dated prints, named sources, estimated ISIN lines. It is not a replacement for the issuer’s calendar.
Belangrijkste punten
- New issues pay the new higher coupon.
- Prices and yields change. When this site quotes them, it dates them on the live board.
- Credit of a G7 government in its own currency is not the same as a stable screen price, and not the same as a bank deposit.
FAQ
- If I never sell, did I lose?
- Mark-to-market is a loss on paper. If you hold a high-quality bond to maturity, you still receive the contracted coupons and par (credit risk aside).