Fixed Income and T-Bills (Akhza): Why a Bond's Price Falls When Rates Rise

Why does a bond's price fall exactly when the market interest rate rises? Let us find out together. This lesson introduces fixed income and Akhza and solves that puzzle. Unlike shares, here you know from the start what maturity pays you. A fixed-income security is really just a tradable loan. Face value is the amount on the note; a coupon is periodic interest. Akhza is the government's zero-coupon note; it pays no monthly interest. The state hands contractors a note, and they sell it on Farabourse. You buy below face value and receive the full amount at maturity. Imagine a one-year note; the cheaper you buy, the higher your yield. So price and yield move in opposite directions; that is the heart of it. Yield to maturity is your annualized return if you hold to the end. In Iran, Akhza is low-risk, trades on Farabourse, and is highly liquid. Mistake one: fixed income is not loss-free; prices swing and inflation bites. Mistake two: a coupon is not the YTM, and Akhza has no coupon at all. Remember one line: a higher rate is good for the new buyer, bad for the current holder. Now you know: when rates rise, existing bond prices fall. Full lesson on Sahmino.com; save it.