What typically happens to bond prices when interest rates rise?

When interest rates rise, bond prices generally decrease due to the inverse relationship between bond prices and interest rates. As new bonds are issued at higher rates, existing bonds with lower rates become less attractive to investors. Consequently, in order to sell these older bonds, their prices must drop to offer a comparable yield, thus increasing their attractiveness to potential buyers. This fundamental principle is rooted in the mechanics of fixed-income securities; as rates go up, the opportunity cost of holding lower-yielding bonds increases, leading to a decline in their market value.

While some options may suggest stability or volatility in bond prices, they do not accurately reflect the primary outcome of rising interest rates in the bond market, which is a clear decrease in prices.