A fixed-rate bond can promise the same payments tomorrow and still trade at a different price. The payments are fixed; the return investors require for owning them is not.
That distinction explains why rising yields push existing bond prices down, why a high coupon is not automatically a high return, and why two bond funds can respond very differently to the same interest-rate move.
The present value of the payments
Consider a simplified two-year bond with $1,000 face value and an annual $50 coupon. It pays $50 after one year and $1,050 after two. At a required yield of 5%, those payments are worth $50 / 1.05 + $1,050 / 1.052 = $1,000 today.
If the required yield rises to 6%, the same payments are worth about $981.67. The issuer has not reduced the coupons. The price falls so a new buyer can earn the higher required yield. TreasuryDirect's pricing explanation describes the inverse relationship between price and yield.
Coupon, current yield, and yield to maturity
The coupon rate is the promised annual payment divided by face value: $50 / $1,000 = 5%. Current yield divides the coupon by today's price: $50 / $981.67, about 5.09%.
Yield to maturity also accounts for receiving $1,000 at maturity after buying for $981.67. In this example it is 6%, assuming the scheduled payments occur. Turning that quoted yield into a realized compounded return also depends on what happens to coupons received along the way.
This is why comparing bonds only by coupon can be misleading. A large coupon accompanied by a high purchase price can offer a lower yield than a smaller coupon bought cheaply.
Duration measures sensitivity
Modified duration gives an approximate percentage price response to a small change in yield. A bond portfolio with duration 4.5 would lose roughly 2.25% if its relevant yields rose by 0.50 percentage points: −4.5 × 0.005.
On $10,000, that is about $225. A duration-two portfolio would lose roughly $100 under the same simplified move; a duration-seven portfolio about $350. FINRA's duration explanation distinguishes this sensitivity from the date a bond matures.
The estimate is local. Larger yield moves introduce curvature, often called convexity. Different maturities can also experience different changes, so one duration number cannot describe every possible reshaping of the yield curve.
Yield is compensation for more than time
A corporate bond's required yield includes compensation for the issuer's credit risk and market liquidity as well as the underlying interest-rate environment. If government yields fall while concerns about the issuer rise, those effects can offset.
For example, a 0.50-point fall in the government component and a 0.80-point increase in the additional credit spread produce a 0.30-point rise in the total yield. At duration 4.5, the rough price effect is −1.35%, even though the government yield fell.
A high quoted yield is therefore not free extra income. Identify what risk produces the difference and whether the quoted yield assumes repayment that is uncertain.
Holding to maturity changes the problem
For an individual bond that pays as promised, holding to maturity makes interim price fluctuations less relevant to the final principal payment. They still matter if you need to sell early, and inflation can reduce what the payment buys.
A conventional bond fund usually keeps replacing maturing holdings to maintain its mandate. It does not necessarily converge to a fixed $1,000 payment on your personal withdrawal date. Rising yields can hurt its price today while improving the yields available for reinvestment afterward.
That creates a tradeoff between immediate price sensitivity and future reinvestment opportunities. Evaluate the bond or fund against the date and currency of the money you will need. The same quoted yield can accompany very different payment dates, credit risk, and sensitivity to a forced early sale.