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Explain why an expectation of Central Bank official rate hikes would cause bond price to fall?
Wiki User
∙ 10y ago
The price of bonds is inversely related to interest rates. If interest rates rise, the value of existing bonds will decline since the coupon rate available on newly issued debt will be higher due to the increase in interest rates. The price of existing bonds will drop in price until the bond provides a yield similar to comparable newly issued debt.
Wiki User
∙ 10y ago
Wiki User
∙ 10y agoThe price of bonds is inversely related to interest rates. If interest rates rise, the value of existing bonds will decline since the coupon rate available on newly issued debt will be higher due to the increase in interest rates. The price of existing bonds will drop in price until the bond provides a yield similar to comparable newly issued debt.
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