Trying to fully understand how Treasure Bonds value is diminished when federal interest rates rise.
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The bond is a way for the government to borrow money from you at whatever interest rate they have established. As time passes, the bonds value grows according to the interest rate they establish, but you cannot cash it in with them until it has matured. That means a $100 30 year bond with a 1% interest rate is worth less than a $100 30 year bond with a 2% interest rate.
But if I have a $100 30 year bond thats 15 years old and has a 5% interest rate, it’s more valuable than a $100 30 year bond you can buy today at a 1% interest rate. So instead of buying one from the government, you can buy the one I have for a higher return, but I’ll charge you more than the government would. The low interest rate the government has increased the value of my bond.
Conversely, if I have 15 year old $100 30 year bond with a 1% interest rate, and the government is offering bonds at 5%, why would you buy a 1% bind from me when you can get a 5% bond from the government and will gain value faster.
The idea behind changing the interest rate isn’t always to give the government money, but rather to get money in or out of the economy. Since inflation is high, the government wants to raise interest rates so people buy bonds and that money is no longer circulating around the economy.
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