BONDS · Beginner · 7 min read · 3 Nov 2026 · Navion Pro Research
Bonds Explained: Why Prices and Yields Move in Opposite Directions
Bond prices and bond yields are two sides of a seesaw. When one goes up, the other goes down. It is one of the most important ideas in markets, and one of the most confusing at first. This guide explains it with simple numbers.
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Key Points
- A bond is a loan. The borrower pays a fixed amount of interest, called the coupon, and repays the loan on a set date.
- The yield is the return you get if you buy the bond at today's price and hold it to the end.
- Because the coupon is fixed, the only way a bond's return can change is through its price. So when yields rise, prices fall, and the reverse.
- Bonds with longer to run move further in price when yields change.
What a bond is
When a government or a company needs to borrow money, it can sell bonds. Each bond is a promise:
- To pay interest at a fixed rate, usually once or twice a year. This is the coupon.
- To repay the loan in full on a set date. This is called maturity.
The US government borrows by selling Treasury bonds, often just called Treasuries. They are among the most widely traded bonds in the world.
Coupon, price and yield
| Term | What it means |
|---|---|
| Face value | The amount repaid at the end, often $1,000 per bond |
| Coupon | The fixed interest the bond pays each year, as a share of face value |
| Price | What the bond trades for today. It can be above or below face value. |
| Yield | The return you get if you buy at today's price and hold to maturity |
| Maturity | The date the loan is repaid |
The coupon never changes once a bond is sold. The price changes every day. The yield changes with the price.
Why prices and yields move in opposite directions
Imagine you own a bond that pays 4% a year. Then interest rates rise, and new bonds pay 5%. No one will pay full price for your 4% bond when they can buy a new one paying 5%. To sell it, you must lower the price until its return matches the new bonds.
If rates fall to 3% instead, your 4% bond becomes more attractive than new bonds. Buyers will pay more than face value for it.
An example: a 1 year bond
This example is for illustration only. The figures are simplified.
A bond has a face value of $1,000, a 4% coupon and 1 year to maturity. In a year, it will pay its owner $1,040: the $1,000 loan back plus $40 interest.
| If yields on similar bonds are | The price that gives that return | Change from $1,000 |
|---|---|---|
| 4% | $1,040 ÷ 1.04 = $1,000.00 | No change |
| 5% | $1,040 ÷ 1.05 = about $990.48 | Down about $9.52 |
| 3% | $1,040 ÷ 1.03 = about $1,009.71 | Up about $9.71 |
The bond still pays $1,040 at the end in every case. Only the price paid today changes, and that is what sets the yield.
A bond's payments are fixed, so its price has to do all the moving.
Why longer bonds move more
A bond with many years left to run locks in its coupon for longer. When yields change, that difference adds up over every remaining year, so the price moves further.
This example is for illustration only. A bond has a $1,000 face value and a 4% coupon. Yields on similar bonds rise from 4% to 5%.
| Time to maturity | Price after yields rise to 5% | Change |
|---|---|---|
| 1 year | about $990.48 | Down about 1% |
| 10 years | about $922.78 | Down about 8% |
The same rise in yields hit the 10 year bond about eight times harder. Traders call this sensitivity duration.
What moves yields
| If | Then yields often | And bond prices often |
|---|---|---|
| Inflation comes in higher than expected | Rise, because fixed payments buy less | Fall |
| The central bank raises rates, or signals it may | Rise | Fall |
| The economy slows sharply | Fall, as traders expect rate cuts | Rise |
| Traders are worried and seek safety | Fall, as money moves into government bonds | Rise |
| The government needs to borrow much more | Rise, to attract enough buyers | Fall |
A pattern, not a rule.
Key US events, in US Eastern time
- US inflation and jobs figures usually come out at 08:30 ET.
- Treasury auctions, where the government sells new bonds, are held through the year. Results for most notes and bonds come out soon after 13:00 ET. Weak demand at an auction can push yields higher.
- Federal Reserve decisions come at 14:00 ET.
These times follow US clocks, so they stay the same in ET all year. The US is on daylight time (EDT) from the second Sunday in March to the first Sunday in November, and on standard time (EST) for the rest of the year.
Trading on bond prices
When you trade a bond CFD, you trade on the bond's price, not its yield. So if you expect yields to rise, that is a view that the price will fall, and the reverse.
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Risk disclosure: Trading involves significant risk of loss and is not suitable for all investors. Past performance is not indicative of future results. This brief is for information and education only. It is not investment advice, a recommendation or an instruction to buy or sell anything. The likely market reactions described here are our assessments of what could happen, not predictions, and markets can and often do move differently. Figures and forecasts come from third party sources and may change. Make your own decisions, and consider independent advice if you are unsure.
