Economics Bonds Questions
The relationship between bond prices and interest rates is inverse. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. This is because when 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 decrease. Conversely, when interest rates decrease, existing bonds with higher yields become more attractive, leading to an increase in demand and higher bond prices.