Bond Values and Interest Rates

I have to admit that until a little while ago, I did not completely understand the reason for why bond prices rise or fall depending on the prevailing interest rates. Although it made sense to me that a bond earning a lower coupon rate than currently available bonds should fall in market price because it will be less desirable than the currently available bonds, I knew there were some concepts I was missing. Once I started reading more about the basics of bonds, I realized that bonds are a lot simpler than most people think. Here are some interesting articles that I have looked at recently:

  • This article, Bond Values and Interest Rates, does a pretty good job at explaining the effect interest rates have on bond values. That web page also features an animated cat!? (if anyone can explain the cat’s relation to bonds I would be grateful). That site also has a few articles about bonds vs. stocks which I would like to comment on one day, but I need to think about it some more.
  • Investopedia‘s bond basics tutorial is a great introduction to the basics of bonds.
  • Investopedia’s advanced bond analysis tutorial is excellent from what I have seen so far. I have just looked at the section about “duration” because that’s what I was interested in and I really liked the diagrams and explanations.

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