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When a central bank increases its interest rate, it typically causes bond yields to rise. The reason for this is that higher interest rates increase the opportunity cost of holding bonds, as investors can now earn a higher return on their money by holding other assets, such as cash or deposits.
As a result, when interest rates rise, bond prices typically fall, which causes the yield on those bonds to increase. This is because the yield on a bond is calculated by dividing its coupon payment by its price. When the price of a bond falls, the yield on that bond increases to compensate investors for the higher risk of holding it.
Overall, if a central bank increases interest rates, bond yields are likely to increase as well, which can have significant implications for the bond market and other areas of the economy that are affected by interest rates.
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