Bond price
- Thread starter vitamin
- Start date
Yield goes up, price goes down.
Practical explanation:
If the market is currently paying 8% but your bond only has a 6% coupon, you'll have to offer it for less in order to make equally attractive to other investors....you'll have to offer it at $75 to make the yield equivalent to other bonds.
8/100 = 8% yield
6/75 - 8% yield
Technical explanation
A bond is valued at the present value of its cash flows (using the yield as the discount factor). As the yield goes up (say from 6% to 8%), the PV of the cash flows (and therefore the value of the bond) decreases.
Practical explanation:
If the market is currently paying 8% but your bond only has a 6% coupon, you'll have to offer it for less in order to make equally attractive to other investors....you'll have to offer it at $75 to make the yield equivalent to other bonds.
8/100 = 8% yield
6/75 - 8% yield
Technical explanation
A bond is valued at the present value of its cash flows (using the yield as the discount factor). As the yield goes up (say from 6% to 8%), the PV of the cash flows (and therefore the value of the bond) decreases.
jamespucyk
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- Jun 18, 2026
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If required yield in the economy increases because of macro monetary influences, the influence of inflation or yield spreads widening, existing bonds will decrease in price and this is because if a bond is trading at 100 and has a coupon of 5% and an increase in inflation by 1% increases the required yield by 1% then a comperable bond can be issued at 6% and trade at par.
What happens to existing 5% bonds? Well you definatly can't sell it at par because you could buy a 6% bond at the same price, so you can only sell it for less, this keeps yields in line with the going yield in the bond market for that given type of bond.
What happens to existing 5% bonds? Well you definatly can't sell it at par because you could buy a 6% bond at the same price, so you can only sell it for less, this keeps yields in line with the going yield in the bond market for that given type of bond.
CFAHouston
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- Jun 18, 2026
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Ex -
I have a bond that is giving me 8% yield in 2000.
In '01 - yield went up to 9%.
my bond value went down because now an investor can go out and buy a bond that is giving 9% while my bonds yield is only 8%.
However, if in '01 - yield went down to 7%, my bond's value is higher since i'm getting higer yield than what the current market rate is providing. (so if I want to sell the bond, I can charge more than what the current market is charging)
this is the best I can do at this hour. Hope it makes sense
I have a bond that is giving me 8% yield in 2000.
In '01 - yield went up to 9%.
my bond value went down because now an investor can go out and buy a bond that is giving 9% while my bonds yield is only 8%.
However, if in '01 - yield went down to 7%, my bond's value is higher since i'm getting higer yield than what the current market rate is providing. (so if I want to sell the bond, I can charge more than what the current market is charging)
this is the best I can do at this hour. Hope it makes sense
CFAHouston
New member
- Jun 18, 2026
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ah, you guys beat me.
Still studying?
Still studying?
jamespucyk
New member
- Jun 18, 2026
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Mid night here too, but up too late over the weekend I'm gonna try to hit probability now.
CFAHouston
New member
- Jun 18, 2026
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glad it helps. get some sleep James.
Good night..sweet dreams
Good night..sweet dreams