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Economics

Bond Pricing

Quick fact

A bond's price is not fixed; it fluctuates inversely with its yield. For example, when interest rates in the economy go up, existing bond prices go down. This inverse relationship is the core of bond pricing.

Why this is interesting

Bonds are often thought of as 'safe' investments, but their prices can rise and fall daily—even though the issuer promises to pay back a fixed amount. How can a bond's price change when its face value stays the same?