Economics Bonds Questions
The impact of market interest rates on bond prices is inverse. When market interest rates rise, bond prices tend to fall, and when market interest rates decrease, bond prices tend to rise. This is because as interest rates increase, the fixed interest payments provided by existing bonds become less attractive compared to newly issued bonds with higher interest rates. As a result, investors demand a discount on existing bonds, leading to a decrease in their prices. Conversely, when interest rates decrease, existing bonds with higher interest rates become more valuable, causing an increase in their prices.