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It's said in books and articles that when the "interest rate" rises, the price of bonds becomes lesser, and vice versa. Intuitively, this is reasonable since bonds with higher interest rates are surely has more demands.

Then, how to know what is the current market interest rate for bonds? And what is the "interest rate" that the bonds use to compare against to determine their own interest rates?

  • It can vary, but usually it is the risk free interest rate, which is either the short term us treasure rates or LIBOR. – Victor123 Feb 7 '15 at 15:41
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You would compare the rate with a bond of similar duration and quality. Preferably, you would compare it to an identical product, like a treasury bond. For things like corporate bonds, direct comparison is usually harder, so other bonds of similar credit quality can be used. Think about it from the perspective of another buyer. They can either buy something else on the market, or your bond. They would find a similar product on the market and that is the price of your bond.

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