Let's simplify and think about it like owning a stock. Maybe you bought it at $100 and it's now worth $80. If you were forced to sell it today, you would have a

Let's simplify and think about it like owning a stock. Maybe you bought it at $100 and it's now worth $80. If you were forced to sell it today, you would have a $20 loss. But you can wait for it to trade up. Bonds have the added benefit of a guaranteed principal at maturity. So if you buy a bond with $100 face value, it will pay that to you at maturity plus some coupon (say, 4%) between now and then. For the sake of simplicity, let's assume the bond was issued at par (meaning not at a discount or premium), so you paid $100 for that $100 face value As time goes by and interests rate fluctuate, the price of that bond in the open market will also vary. When interest rates go up, prices go down and yields go up, because investors demand a greater return (higher yield) and since the "4%" is hardcoded into the bond, the only way to give additional yield is by trading your otherwise $100 bond for, say, $98.