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What factors affect the price of bonds?

Curious about Bonds

What factors affect the price of bonds?

There are several factors that can affect the price of bonds. These include:

1. Interest rates: When interest rates rise, bond prices tend to fall, and vice versa. This is because investors are more likely to buy bonds with higher interest rates, so they will sell existing bonds with lower interest rates, which drives down their prices.

2. Credit rating: The credit rating of a bond issuer can also impact the bond's price. If a bond issuer has a poor credit rating or defaults on its debt, investors will demand a higher yield to compensate for the increased risk.

3. Inflation: Inflation erodes the purchasing power of a bond's future cash flows, so bonds with lower yields may be less attractive to investors.

4. Supply and demand: The supply and demand for bonds can also affect their prices. If there are more buyers than sellers, bond prices will rise, and if there are more sellers than buyers, bond prices will fall.

5. Time to maturity: Bonds with longer maturities tend to be more sensitive to changes in interest rates than those with shorter maturities.

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