Why do bonds fluctuate in price if their yield is fixed?
When a new bond is first sold, the price is fixed. Thereafter, the bond’s price rises or falls in relation to changes in interest rates. When interest rates rise, the bond’s price goes down because its fixed yield becomes less desirable than the higher rates of newly issued bonds of similar quality. If interest rates fall, conversely, the same bond’s yield becomes more attractive, driving up its price.
Related Questions
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