Episode Summary Perhaps the most famous rule in fixed income is that bond prices and yields move in opposite directions, always and without exception. Yet, when rates rise and bond portfolios fall, many investors are left bewildered. Why should a perfectly healthy, default-free bond decline in value when every payment is being made on schedule and in full? This episode explains the unyielding arithmetic of the price-yield see-saw, reveals the crucial difference between holding an individual bond to maturity versus holding a rolling bond fund, and details why panic-selling a depressed bond fund is the exact same behavioral trap as selling stocks at the bottom of a crash.

Key Concepts

• The Contractual Constraint: The see-saw exists because a bond's coupon is contractually fixed at i ...