Question

why interest rate of market and price of bonds have inverse relation

Answer 1

On the surface level this question might seem a bit puzzling, but it is absolutely correct that bonds have inverse relation to interest rate of market. Suppose a bond is giving a return of 6% per year and on the other hand the return from interest rate is 8%. Then it is obvious that people would sell bonds and keep the money in their banks. If the interest rate decrease by 2.5% in this case the bond would become attractive to the people and people would take out money from their banks and invest in bonds for a better return.S if interest rates drop the price of bonds increase.