Economics Stack Exchange Archive

Interest rates and bonds: What is their relation?

• posted by: buruzaemon on 2011-12-05
• tagged: bonds, interest-rates
• score: 1

I read in a study text that:

• When interest rates are decreasing, investors will migrate their bonds from short- to longer-term ones
• When interest rates are increasing, investors will migrate their bond holdings from longer-term to shorter ones

I don’t fully understand why this would be, but I think this would have to be due to risk management and/or an attempt to take advantage of large movements in bond price.

Could anyone shed some light here to help me to understand what the relation between interest rates and bonds?

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