What Is the Effect on Interest Rates When Bonds Rise?
Bonds that are traded in securities markets all pay a fixed sum of money each year called the “coupon rate.” Since this is a fixed amount, the effective interest rate (called the “yield”) depends on the price of the bond. Thus, there is an effect on interest rates when bond prices rise. The key to understanding the price/yield relationship is to know what market factors will probably cause bond prices to go up.
