<\/span><\/h2>\nThe primary driver of bond price changes is interest rates. As interest rates rise, the value of existing bonds tends to decrease, and as rates fall, bond values rise. The reasoning behind this inverse relationship is relatively straightforward.<\/p>\n
When interest rates rise, newly issued bonds offer higher coupon payments to attract buyers. These higher coupon payments make older bonds, with their lower fixed interest rates, less appealing.<\/b> As a result, the prices of existing bonds decline to compensate for the discrepancy in interest rate payments. Conversely, when interest rates decrease, newly issued bonds have lower coupon payments, making previously issued bonds with higher fixed interest rates more desirable. Consequently, the prices of these older bonds increase.<\/p>\n