Bond Calculator · Practical guide
Bond Prices When Interest Rates Rise
Bond prices move opposite to rates — here is exactly how much a 1% rate move costs or earns you.
At a glance
The Short Answer
When market interest rates rise, existing bond prices fall, because their fixed coupons become less attractive next to new bonds paying more. A $1,000 face-value bond with a 5% coupon and 10 years to maturity is worth $1,081.11 at a 4% market rate, exactly $1,000 at 5%, and just $926.40 at 6% — a swing of about $155 for a two-point rate move.
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Results
Same Bond, Three Rate Environments
| Market Rate | Bond Price | Current Yield | vs Face Value |
|---|---|---|---|
| 4% | $1,081.11 | 4.62% | +$81.11 premium |
| 5% | $1,000.00 | 5.00% | par |
| 6% | $926.40 | 5.40% | −$73.60 discount |
*$1,000 face value, 5% annual coupon, 10 years to maturity.
Why the Math Works This Way
A bond's price is the present value of its future coupons plus its face value, discounted at the market rate. Raise the discount rate and every future payment shrinks in today's dollars. The coupon itself never changes — only what investors will pay for that stream of income.
Longer Maturities Swing Harder
The further out the payments, the more a rate change compounds. That is why 20- and 30-year bonds lose more when rates rise than 2-year notes, and why the zero-coupon bond — one payment decades away — is the most rate-sensitive structure of all. Run the same coupon at 5, 10, and 20 years above to see the sensitivity grow.
What This Means for Holders
If you hold to maturity, price swings are just paper moves — you still collect the coupons and full face value. The loss becomes real only if you sell early. Buyers, meanwhile, get higher yields exactly when existing holders take markdowns, which is why rising-rate markets reward new money.
Frequently Asked Questions
How much does a 1% rate rise cut a bond's price?
Roughly 1% per year of duration. A 10-year bond with duration near 8 loses about 8% when rates rise one point — which is why the 5% coupon bond above drops from $1,081.11 to around $926.40 across two points.
Do all bonds fall when rates rise?
Nearly all fixed-rate bonds do, but to different degrees. Short-maturity and floating-rate bonds barely move; long-maturity and zero-coupon bonds move the most.
If rates rise, should I sell my bond?
Only if you need the cash or can reinvest at a meaningfully better return after costs. Holding to maturity still pays the full face value plus every scheduled coupon.
Do bond funds behave differently than individual bonds?
Yes. Funds have no single maturity, so they continuously reinvest and their prices reflect rate moves permanently. Individual bonds let you wait out the storm until par value returns at maturity.