Bonds, explained: why prices fall when yields rise

A bond is a loan you give to a government or a company. In return you get a fixed interest payment every year, called the coupon, and your money back on a fixed date, called maturity.

The see-saw

Bonds trade every day, like shares. Now imagine interest rates across the economy rise, and new 10-year bonds start paying 8%. Nobody will pay ₹1,000 for your bond that pays ₹70 when a new one pays ₹80. Its price has to fall until the ₹70 a year plus the ₹1,000 at maturity gives a buyer the same 8% return. That price works out to about ₹933.

If rates fall to 6% instead, your 7% bond becomes more attractive than anything new, and its price rises to about ₹1,074.

That return a buyer locks in at today's price is called the yield. Price and yield always move in opposite directions. When you read "bond yields rose", it means bond prices fell.

Why longer bonds swing more

The further away maturity is, the more years of below-market coupons the buyer is stuck with, so the bigger the price drop when rates rise. This sensitivity is called duration. A 30-year bond can lose far more than a 1-year bond for the same rise in rates.

Why this matters even if you never buy a bond

• Debt fundsDebt mutual funds hold bonds. When yields rise, their NAV falls, especially for long-duration funds. When the RBI cuts rates, those funds gain.
• Your FDBanks price new fixed deposits off the same market rates, so FD rates rise and fall with bond yields.
• The stock marketIf safe government bonds pay more, stocks have to offer more too, so their prices tend to fall. Compare the earnings yield in our P/E explainer.
• Foreign moneyGlobal investors compare Indian assets with US government bonds. In October 2026, Geojit's VK Vijayakumar pointed out that 10-year US Treasuries were yielding above 5.2%, one reason foreign investors had pulled more than ₹3 lakh crore out of Indian shares this year.

The words you'll hear

• G-secA government security: a bond issued by the central or a state government. The benchmark is the 10-year G-sec.
• T-billTreasury bill: a government bond that matures in a year or less.
• Credit riskThe chance the borrower doesn't pay. Company bonds pay more than G-secs because of it.