Why Bond Prices Change

The video discusses the reason why bond prices change.  Upon issuance, bonds sells at face value, or par. However, the price of a bond can change in value as interest rates or credit ratings fluctuate.  It is important to note that as interest rates rise, bond prices fall.  Conversely, when interest rates fall, bond prices increase.  Bonds are traded in the secondary market, where these price changes are reflected.

Premiums versus discounts are also discussed.  A bond which is selling over par in the secondary market, it is said to be trading at a premium and when the bond is selling below par, it is said to be trading at a discount.