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How rising interest rates are impacting the bond market

How rising interest rates are impacting the bond market

The interest rate environment changed dramatically in 2022. The benchmark 10-year U.S. Treasury note yielded 1.5% at the end of 2021, but quickly moved higher. By May, the yield topped 3% and in June, the 10-year Treasury yield reached its highest level in 11 years, 3.485.1 This was generally considered a negative development for bond investors because of the inverse relationship between bond yields and bond prices. When yields rise, prices of bonds already in the market fall. This is a function of supply and demand in the marketplace. When demand for bonds declines, issuers of new bonds are forced to offer higher yields to attract buyers. That reduces the value of existing bonds that were issued at lower interest rates. Bondholders were hard hit by this environment in the opening months of the year. […]