Bonds Interest Rate

How does the government raising interest rates makes making security bonds more attractive?

Is it because raising interest rates makes bond's interest higher as well? But doesnt bond also only attractive if the national interest is low since the interest of the bond has a higher yield compared to when the interest is higher which eats up the overall gain from a bond's interest. Unless its only attractive if the current interest rate is higher and the new bond issued thus automatically becomes higher which makes it attractive. However, for the old bonds issued with lower interest rates makes it less attractive on the second market. Economist , professors please how does this work? thanks

Public Comments

1. Bonds are attractive in an environment with higher interest rates because investors can achieve a higher rate of return on their investment. Think about it. If the interest rate was previously 4%, and the Fed raises the interest rate to 10%, then a bond at par (1000), which previously yielded 40 now yields 100. Bonds have a value for the bond itself and the semi-annual coupon. Interest rates and the value of the bond have an inverse relationship to each other. If the interest rate increases, then the value of the bond decreases, and it means that I can spend less money to achieve the same coupon that I was able to get when the bond was first issued. I can't follow your explanation of the relationship between the bond and interest rates. I recommend reading that part of the textbook again.