What happens to Treasury bonds when interest rates rise?

The behavior of bond prices is intricately tied to fluctuations in interest rates. As interest rates escalate, a notable trend emerges in the pricing dynamics of existing bonds. Despite the coupon rates maintaining their stability, the prices of these bonds tend to plummet, with yields experiencing an upward surge.

Conversely, the scenario reverses when interest rates experience a decline. In such instances, the prices of existing bonds embark on an upward trajectory, their coupon rates steadfastly remaining unchanged. This parallel shift results in a decrease in the yields offered by these bonds.

The correlation between interest rates and bond prices underscores the sensitivity of the fixed-income market to monetary policy adjustments. Investors in bonds must, therefore, stay vigilant to these fluctuations, as they significantly impact the returns generated by their portfolios.

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