Interest rate hikes can have a significant impact on bond prices. When interest rates increase, the yield on new bonds also increases, making them more attractive to investors than existing bonds with lower yields. Existing bonds are therefore less in demand, which lowers their price. This is because instead of holding on to lower-yielding bonds, investors can buy new bonds with greater yields. On the other hand, when interest rates fall, there is a greater demand for current bonds, which drives up the cost of those bonds. To lessen the impact of interest rate increases on their bond portfolios, bond investors must monitor changes in interest rates and modify their investing strategy as necessary.
The impact of interest rate hikes on bond prices.
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