https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/bond-prices-rates-yields
If you buy a new bond and plan to keep it to maturity, changing prices, market interest rates, and yields typically do not affect you, unless the bond is called. But investors don't have to buy bonds directly from the issuer and hold them until maturity; instead, bonds can be bought from and sold to other investors on what's called the secondary market. Similar to stock, bond prices can be higher or lower than the face value of the bond because of the current economic environment and the financial health of the issuer.
Image: How a bond price is measured.
Price is important when you intend to trade bonds with other investors. A bond's price is what investors are willing to pay for an existing bond.
In the online offering table and statements you receive, bond prices are provided in terms of percentage of face (par) value.
Example: You are considering buying a corporate bond. It has a face value of $20,000. At 3 points in time, its price—what investors are willing to pay for it—changes from 97, to 95, to 102.
Image: Illustration of when interests rates go down bond prices may go up.
The price investors are willing to pay for a bond can be significantly affected by prevailing interest rates. If prevailing interest rates are higher than when the existing bonds were issued, the prices on those existing bonds will generally fall. That's because new bonds are likely to be issued with higher coupon rates as interest rates increase, making the old or outstanding bonds generally less attractive unless they can be purchased at a lower price. So, higher interest rates mean lower prices for existing bonds.
If interest rates decline, however, bond prices of existing bonds usually increase, which means an investor can sometimes sell a bond for more than the purchase price, since other investors are willing to pay a premium for a bond with a higher interest payment, also known as a coupon.
Image: Illustrates as bond prices go up the yield may go down
This relationship can also be expressed between price and yield. The yield on a bond is its return expressed as an annual percentage, affected in large part by the price the buyer pays for it. If the prevailing yield environment declines, prices on those bonds generally rise. The opposite is true in a rising yield environment—in short, prices generally decline.
Let's say you buy a corporate bond with a coupon rate of 5%. While you own the bond, the prevailing interest rate rises to 7% and then falls to 3%.
Bond price chart
