What happens to bond prices when interest rates rise?

When interest rates rise, bond prices typically fall. This happens because new bonds are issued with higher interest rates, making them more attractive to investors. If you already own a bond with a lower interest rate, it becomes less valuable compared to the new ones. For example, if you have a bond that pays 3% interest and new bonds are available at 5%, people will want the new bonds instead. As a result, to sell your bond, you may have to lower its price to compete with the higher-yielding options.