Why would there be a loss on the sale of a bond investment?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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As is the case with most other forms of investments, the price of bonds can go up and down.  Changes in the prices of bonds tend to reflect the interest rates available to investors.  They also can reflect the stability of the company or governments whose bonds are held by an investor.

The price of a bond is generally inversely related to the interest rate.  If the interest rate is high, the price for which an investor can sell their bonds is typically low.  Therefore, if an investor buys a bond when interest rates are low and sells when interest rates are high, he or she is likely to realize a loss on the transaction.

Similarly, a bondholder may lose money on a sale if the firm or government that issued the bond has lost creditworthiness.  In such a case, other investors will be reluctant to buy the bonds and the original investor will have a hard getting a price high enough to realize a gain.

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