What happens to the value of a 9% bond when 9.5% bonds are introduced?

When 9.5% bonds are introduced into the market, they offer a higher yield compared to the existing 9% bonds. Investors are generally attracted to higher yields, making the new 9.5% bonds more appealing. As a result, the demand for the existing 9% bonds will decrease because they provide lower interest payments than the new option.

In financial markets, bond prices and yields have an inverse relationship. When new bonds with higher yields are available, the existing bonds with lower yields must adjust to maintain market competitiveness. This adjustment generally manifests as a decrease in the value of the older bonds, as investors will be willing to pay less for them to match the yield available from the new bonds. Consequently, the value of the 9% bonds will decrease as market conditions shift to accommodate the newly issued bonds with a higher interest rate.