What happens to bond prices when interest rates rise?

When interest rates rise, bond prices usually fall. This happens because new bonds are issued with higher interest rates, making them more attractive to investors. If you have an older bond that pays a lower interest rate, it becomes less valuable since people would prefer the new bonds that pay more. For example, if you own a bond that pays 3% interest and new bonds come out paying 5%, buyers will only want to pay less for your bond because they can get a better deal elsewhere. Therefore, when interest rates go up, the price of existing bonds typically goes down.