Do you understand how falling interest rates impact bond prices?
Very likely, the answer is “no” — even if you think you do understand the effect.
Recently, international financial advisory firm Natixis polled more than 7,000 investors in 21 countries and asked them about the relationship between interest rates and bond prices as part of the firm’s 2025 Global Survey of Individual Investors.
While more than half of survey respondents — 60% — said they felt confident in their understanding of how interest rates affect bonds, few could correctly answer two multiple-choice questions about the relationship between interest rates and bond prices.
Natixis asked survey participants to explain what happens to bonds when a central bank — like the U.S. Federal Reserve — cuts interest rates. Specifically, Natixis asked:
- “If rates are cut, will the value of bonds you own now go up or down?”
- “And if rates are cut, will the income from bonds you buy in the future be higher or lower?”
The correct answers are:
- The price of currently owned bonds increases. (This is because bonds purchased before the rate cut will have a higher rate than bonds purchased after the rate cut, making the former more attractive to other investors.)
- The income received from bonds purchased in the future decreases. (This is because such bonds will have a lower rate and therefore generate less income.)
Just 3% of respondents answered both questions correctly. Natixis acknowledges that the math is “tricky” and that it includes an inverse relationship. Both factors probably trip up a lot of investors.
Still, to answer the questions correctly, one needs only a basic understanding of how bonds work. So, the failure of so many investors to accurately answer the questions is both surprising and troubling.
Perhaps more concerning is the fact that so many are overconfident about their knowledge of the relationship between bonds and interest rates. A notable exception occurred among investors in Australia and Germany, with 42% and 50%, respectively, admitting that they simply weren’t sure of how the relationship worked.
The good news is that almost half of respondents — 48% — said they are willing to learn more about bonds. So, there is reason for optimism in that investor knowledge could improve with the right education.
If you are ready to begin that process, start with an explainer from Money Talks News founder Stacy Johnson. He offers “the simplest explanation of bonds you’ll ever read” in “Why Is My Bond Fund Losing Money?“
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