How do interest rates affect bonds?

How do interest rates affect bonds?

Interest rates have an inverse relationship with bond prices. When interest rates rise, bond prices typically fall.

Why do bond prices fall when interest rates increase?

When interest rates increase, new bonds are issued at higher rates, making existing bonds with lower rates less attractive.

What happens to bond yields when interest rates go up?

Bond yields increase when interest rates rise because the yield is calculated based on the bond's coupon payment relative to its price.

Are there any types of bonds that are less affected by interest rate changes?

Yes, shorter-term bonds are generally less sensitive to interest rate changes compared to long-term bonds.

How can I protect my bond investments from rising interest rates?

You can consider diversifying your portfolio, investing in shorter-duration bonds, or using bond funds that actively manage interest rate risk.