If market interest rates move upwards after an investor buys a government bond,the investor may:

Question

Quizplus · Accepted Answer

If market interest rates move upwards, the value of existing bonds with lower yields decreases. Therefore, if an investor sells the bond in the secondary market, they will receive less than what they initially paid for it, resulting in a capital loss. Holding onto the bond until market rates return to their original level and then having a capital gain is uncertain and depends on the future market conditions, so it is not a definite option. Selling the bond back to Treasury is not a possibility because Treasury only buys back bonds under certain conditions, which may not include a rise in market interest rates.

If Market Interest Rates Move Upwards After an Investor Buys