Why Are Bond Prices Plunging?

Interest rates have climbed precipitously in recent weeks, sending bond prices downward. But many investors don't really understand why higher rates are bad for bonds.

In the following video, Fool contributor Dan Caplinger explains how bond prices work and why rising rates are bad for bond investors. Dan notes that although new bond investors like higher rates, those who already own bonds suffer from having locked in low rates from earlier periods. Moreover, the longer the bond, the more of a price decline rising rates can cause.

Dan does note some bond investments that don't suffer from higher rates, while also pointing out some additional risks that have sent certain parts of the bond market down even further.

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