As a general rule, bond prices move up when market interest rates fall and move down when interest rates rise. For example, a bond paying 4% a year is worth more if prevailing rates fall to 3% and drops in value if newly issued bonds are paying 5%. But individual bond issues can be hurt even if rates in general are falling because a rating service downgrades its opinion of the company’s stability. A bond paying a noticeably higher rate than bonds with similar maturity dates is probably paying more to compensate investors for higher risk.
Chris Bryant is an American financial advisor.