What typically happens to the prices of fixed income securities when interest rates rise?

When interest rates rise, the prices of fixed income securities, such as bonds, typically fall. This is primarily due to the inverse relationship between interest rates and bond prices. When new bonds are issued at higher interest rates, existing bonds with lower rates become less attractive to investors. As a result, the market value of these older bonds decreases to align their yields with the newly issued bonds.

Furthermore, when interest rates increase, the opportunity cost of holding existing bonds rises because investors could potentially earn higher returns on new bonds. This dynamic leads to a decrease in demand for existing bonds, thereby driving their prices down. Understanding this relationship is crucial for investors, as it influences investment strategies and portfolio management in a rising interest rate environment.