Economics Bonds Questions
The impact of interest rate changes on bond prices is inverse. When interest rates rise, bond prices generally decrease, and when interest rates fall, bond prices generally increase. This is because as interest rates increase, newly issued bonds offer higher yields, making existing bonds with lower yields less attractive to investors. As a result, the demand for existing bonds decreases, causing their prices to decline. Conversely, when interest rates decrease, existing bonds with higher yields become more desirable, leading to an increase in their prices.