The future cash flow of existing bonds is fixed and it does not increase. If you have a bond that pays a 2% annual coupon you will see it's value drop when inte

The future cash flow of existing bonds is fixed and it does not increase. If you have a bond that pays a 2% annual coupon you will see it's value drop when interest rates increase. The reason is that you can now get a newly issued bond that pays a higher (say 3%) fixed coupon so your's is worth less. Your bond's price will drop to say 90% of the notional amount while the new bond will trade at 100% so they will effectively have the same "yield" of 3%.