FYI: As a general rule, bond prices go down when interest rates go up. But prices for some bonds fall more than others given the exact same change in interest rates. Understanding the basic drivers of interest rate risk can help you identify which bonds make the most sense for you, and can help you identify which bonds are best to own—or best to avoid—if you think interest rates will increase.
In general, bond values decrease when interest rates increase, because investors can get a better deal in a rising rate environment. Imagine a bond that’s fairly priced and paying a 4% coupon. That coupon—another word for the regular interest payment—is typically a fixed cash amount, say, 4% of a $100 par bond, or $4. If interest rates suddenly increase, a newly issued bond that’s very similar to the original bond might carry a 5% coupon, paying $5 annually and automatically becoming more attractive than the bond paying 4%.
Regards,
Ted
https://www.etf.com/publications/etfr/digging-duration
