Bonds, priced.

— Why bond prices move opposite to rates

Your coupon is locked in. The market is not.

The day a bond is issued, the coupon is stamped on it forever. A 4% coupon on a $1,000 bond pays you $40 a year, no matter what the Fed does next Tuesday or what the 10-year Treasury auction prints next month. The coupon is a contract. The market price of the bond is not.

When new bonds start coming out at 5%, your 4% bond becomes the inferior product on the shelf. The only way to sell it is to mark it down, until the discount on the price plus the coupons you still collect adds up to the same total return as the new 5% bond. That markdown is what we call the price falling. It is the math doing its job, not anyone panicking.

The reverse is just as mechanical. Cut rates, and brand-new bonds pay 3% while yours still pays 4%. Now your bond is the scarce thing, and the market bids the price up until the math matches again. This is why a 30-year Treasury can move 10% in a week without a single coupon being missed. The coupon does the paying. The price does the adjusting.

The longer the bond, the more coupons are riding on the new discount rate, and the more the price has to swing to compensate. A 2-year note barely flinches when rates move. A 30-year long bond moves like a tech stock. That sensitivity has a name, duration, and it is the single most important word in fixed income.