What most people miss

You own a 5% bond. Then the economy moves.

The primary market issues a brand-new bond at today's rate. The secondary market is where your old bond reprices to stay competitive. Your $50/yr never changes — only the price does, and the yield moves opposite to it.
Economy: Recession — rates fall
Economy: Heats Up — rates rise
 
Baseline
your bond at issue
New Bond
primary market
Your Bond
secondary market
New Bond
primary market
Your Bond
secondary market
Par Value
$1,000
$1,000
$1,000
$1,000
$1,000
Coupon Rate
5%
3%
5%
7%
5%
Maturity (Yrs)
10
10
10
10
10
Interest Payments
total over 10 yrs
$500
$300
$500
$700
$500
Purchase Price
what the market charges
$1,000
$1,000
$1,170.60 ↑
$1,000
$859.53 ↓
Current Yield
$50 ÷ price
5.0%
3.0%
4.3%
7.0%
5.8%
When the 10-Year Treasury yield moves, your mortgage rate moves with it.
Evolve. Financial
Rates fall → buyers bid your bond up to $1,170.60. Rates rise → it drops to $859.53. The price moves until your total return matches the new rate.
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