Part 3/15:
He explained how bond prices move inversely with interest rates: when rates rise, bond prices fall; when rates decrease, prices go up. For example, if a 10-year US Treasury bond is issued with a 1.75% coupon, and interest rates climb to 2.75%, its market value might drop approximately 8%. The risk lies in the fact that during recent decades, interest rates in the U.S. have plunged from 14% in the 1980s to approximately 1.75% today. This historically low yield environment has forced existing bonds into a market where their coupons are often below new yields, leading to significant mark-to-market losses for holders.