Interest rate and bonds

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When interest rate goes up in the future, the value of the bonds will fall. The fall will be highest for the long dated bonds, i.e. those that mature many years down the road.

For example, if you buy a bond that gives a yield of 3% for 10 years, and the interest rate increases to 4%, the bonds will fall in value by about 8%. However, you do not need to realize this loss. You can keep the bond until maturity, receive your yield of 3% and the par value at that time. If you bought the bond at higher than the par value,you will suffer a small loss as only the par value is returned.