Bonds

What makes bond prices rise and fall?

Bond prices fall when interest rates rise, and rise when interest rates fall. Here’s why:

Say you buy a $1,000 bond paying a locked-in 5% interest rate.

If interest rates subsequently rise to 6%, a bond paying 5% will not be attractive to investors. If you want to sell it, you must accept a lower price than what you paid.
On the other hand, if interest rates subsequently fall to 4%, a bond paying 5% is very desirable. Investors will be willing to pay more in order to get the locked in higher rate.