How does the inverse relationship between Interest Rates and Bond Prices work?
Have you ever wondered why bond prices fluctuate so much with changes in interest rates? This movement is not random — in fact, it follows an essential logic of the financial market. In this post, we will explain simply the inverse relationship between interest rates and bond prices so that you can invest with more security and strategy.
What are fixed income securities?
Fixed income securities are financial instruments that operate like loans: you lend money to an issuer (such as the government or a company) and, in return, receive interest over time. Popular examples include Tesouro Direto in Brazil and Treasury Bonds in the USA.
When you acquire a bond, you have two forms of return:
- Receiving periodic interest payments (the "coupons").
- Redeeming the principal amount (the "face value") at maturity.
Why do bond prices fall when interest rates rise?
This is the famous inverse relationship between interest rates and bond prices.
The effect of new interest rates on the market
Imagine you purchased a bond that pays 10% interest per year. If, the following month, the market starts offering bonds with a 12% yield, your bond becomes less attractive — after all, it pays less. To sell it, you need to lower the price, and that’s how bond prices fall when interest rates rise.
The opposite also happens
If interest rates fall and new bonds begin to offer 8%, your bond that pays 10% becomes more valuable. As a result, its price rises in the secondary market.
How does this affect investors?
Return for those who already have the bond
If you bought a bond and plan to hold it until maturity, the price fluctuation matters little: you will receive the agreed value at the end. But if you want to sell before maturity, the market price can impact your gain (or loss).
Opportunities for new investors
Attentive investors can take advantage of moments of rising interest rates to acquire bonds with more attractive yields. This helps ensure good returns in the long term — as long as they understand the market risk.
An essential concept for those who want to invest strategically
The relationship between interest rates and bonds is one of the foundations of fixed income. Knowing how it works allows for more conscious decision-making, risk assessment, and the ability to seize opportunities that many overlook.
Within the Inter app, you can access fixed income investments and other products that benefit from this knowledge — all with practicality and real-time tracking. Download the app now and discover the best investment options for you.
Invest with more clarity and fewer surprises
Now that you understand why bonds lose value when interest rates rise, you are better prepared to invest intelligently. Fixed income can be safe and profitable — as long as you understand how the market behaves.
With the Inter app, you access a complete investment platform where you can:
- Compare different fixed income securities with automatic simulations.
- Invest with no brokerage fees.
- Receive cashback on selected products.
- Track your return in real-time, directly from your phone.
- Enjoy a 100% digital, secure, and intuitive experience.
All of this in one place, integrated with your digital account and with support to make better-informed decisions.
Download the Inter app and start investing with autonomy, security, and real returns.
