What happens to the value of a bond if the interest rates rise?

When interest rates rise, the value of existing bonds typically decreases. This occurs because new bonds are issued at higher interest rates, making them more attractive compared to older bonds that pay lower rates. Investors seeking to maximize their returns will prefer these new bonds, leading to a reduction in demand for older bonds. Consequently, in order to sell these older bonds in the market, prices will need to drop to match the prevailing interest rates. This inverse relationship between interest rates and bond prices is a fundamental principle of bond investing, reflecting how the fixed interest payments from existing bonds become less appealing when new bonds offer better rates.