Inverse Relationship
For any time-value-of-money calculation, a higher discount rate results in a lower present value for any fixed future cash flow and a lower discount rate results in a higher present value. Therefore, bond yields-to-maturity and prices move in opposite directions.
Coupon Effect
The size of bond coupon cash flows affects how much a bond’s price will change for a given yield change for bonds of the same maturity. The lower a bond’s coupon, the higher the proportion of total cash flow that occurs at maturity.
Maturity Effect
The time-to-maturity of a bond also affects a bond’s price/yield relationship. Generally, all else equal, a longer-term bond has a greater percentage price change than a shorter-term bond when the market discount rates change by the same amount.
Constant-Yield Price Trajectory
Convexity Effect
