What is the story about?
Bond yields determine the return an investor receives, expressed as a percentage, and they move inversely to bond prices. As the bond market expands heading into 2026, understanding this relationship is essential for both existing and new investors.
Bond prices and yields work in opposite directions. When yields rise, bond prices fall. When yields decline, bond prices rise. This inverse movement changes the value of bonds held by current investors and influences the returns available to new investors.
For existing bondholders, rising yields mean the fixed coupon payments on older bonds become less attractive compared to newly issued bonds offering higher returns. The investor faces a capital loss only if the bond is sold before maturity. On the other hand, when yields decline, the price of existing bonds increases. Bonds with higher coupons become more valuable than newly issued lower-yield bonds, allowing investors to realise a higher capital gain if the bond is sold before maturity.
Also Read | Explained: The basics of bonds and why they matter for your portfolio
For new investors, the impact works differently. When yields rise, bond prices fall, giving buyers the chance to lock in a higher yield to maturity. In this scenario, the purchasing power is lower, also potential for higher returns because the investor gets a better yield on the same investment amount. When yields fall, new buyers face higher prices for existing bonds with attractive coupon rates. As a result, return potential decreases because the yield to maturity is also on the lower side.
The discussion also extends to fixed-rate Non-Convertible Debentures (NCDs), which are gaining traction. These instruments are issued by companies to raise funds and function as loans from investors. NCDs pay a predetermined interest rate and return the principal amount at maturity. Unlike some types of debt, they cannot be converted into equity shares and do not give ownership rights. With more companies tapping the debt market, investors have expanding options with defined interest and maturity terms.
Catch all the latest updates from the stock market here
Bond prices and yields work in opposite directions. When yields rise, bond prices fall. When yields decline, bond prices rise. This inverse movement changes the value of bonds held by current investors and influences the returns available to new investors.
For existing bondholders, rising yields mean the fixed coupon payments on older bonds become less attractive compared to newly issued bonds offering higher returns. The investor faces a capital loss only if the bond is sold before maturity. On the other hand, when yields decline, the price of existing bonds increases. Bonds with higher coupons become more valuable than newly issued lower-yield bonds, allowing investors to realise a higher capital gain if the bond is sold before maturity.
Also Read | Explained: The basics of bonds and why they matter for your portfolio
For new investors, the impact works differently. When yields rise, bond prices fall, giving buyers the chance to lock in a higher yield to maturity. In this scenario, the purchasing power is lower, also potential for higher returns because the investor gets a better yield on the same investment amount. When yields fall, new buyers face higher prices for existing bonds with attractive coupon rates. As a result, return potential decreases because the yield to maturity is also on the lower side.
The discussion also extends to fixed-rate Non-Convertible Debentures (NCDs), which are gaining traction. These instruments are issued by companies to raise funds and function as loans from investors. NCDs pay a predetermined interest rate and return the principal amount at maturity. Unlike some types of debt, they cannot be converted into equity shares and do not give ownership rights. With more companies tapping the debt market, investors have expanding options with defined interest and maturity terms.
Catch all the latest updates from the stock market here
