A bond is a loan you make. You lend €1,000 for 10 years. You get €20 a year, 2%, and your €1,000 back at the end.
← The MachineWhat it is Why its price moves The numbers The trap Where you see it In one lineNextThe price moves before the news
Then rates rise and new bonds pay 4%: €40 a year. Nobody pays €1,000 for your €20 when €40 is on offer. Your bond is fine. Its price has to fall.
With 10 years left, your bond sells for about €840 when new ones pay 4%. The €160 less makes up for the smaller payments. If rates fall back, the price climbs again.
Safe means the payments come. It does not mean the price stays still. The longer the bond, the bigger the fall: with 30 years left, the same change takes it to about €650.
In 2022, Germany’s 10-year bond went from paying below zero to about 2.5%. Older bonds fell in price, and many bond funds had one of their worst years on record.
When new bonds pay more, old ones are worth less. The longer the bond, the bigger the fall.
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What share of your pension or fund is bonds?
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