As is the case with most other forms of investments, the
price of bonds can go up and down. Changes in the prices of bonds tend to reflect the
interest rates available to investors. They also can reflect the stability of the
company or governments whose bonds are held by an
investor.
The price of a bond is generally inversely
related to the interest rate. If the interest rate is high, the price for which an
investor can sell their bonds is typically low. Therefore, if an investor buys a bond
when interest rates are low and sells when interest rates are high, he or she is likely
to realize a loss on the transaction.
Similarly, a
bondholder may lose money on a sale if the firm or government that issued the bond has
lost creditworthiness. In such a case, other investors will be reluctant to buy the
bonds and the original investor will have a hard getting a price high enough to realize
a gain.
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