If interest rates on government bonds are expected to rise because of predictions that the government deficit will be larger than previously expected, then

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Quizplus · Accepted Answer

When there is an expectation of increase in interest rates, the market makers would attempt to sell the bonds before their value drops. As interest rates rise, the demand for existing bonds decreases, resulting in a lower price. Hence, the bond price will drop affecting the value of the bond.

If Interest Rates on Government Bonds Are Expected to Rise