What causes a bonds price to rise?
If you have invested in a bond and interest rates fall, your bond will rise in value. If interest rates rise, your bond will fall in value. Why? When interest rates change, the price of an existing bond with a fixed interest payment (coupon rate), one that doesn’t float (adjustable rate) with market interest rates, or a bond with a zero-coupon interest rate, must adjust in price to provide the same return as an equivalent, newly issued bond that has a higher or lower coupon interest rate. The risk that a bond’s price will vary as interest rates change is usually termed interest rate risk.
