How are bond prices related to inflation?

Here is a simple chart showing how bond prices, inflation and yield correlates. The mechanism behind this has been illustrated by others already. If inflation rises, it usually is bad news for bond holders.

One can hedge against this using Inflation-Linked Bonds. These bonds help to link principal and interest payments received by bond holders to the inflation rate or a measured inflation index. Basically during periods of inflation, principal or interest payments are boosted so that the value of the bond does not erode too much.

You can read more about it here:

https://www.pimco.com.sg/en-sg/resources/educat...

Hi,

When inflation is high, government will increase interest rate to cope with it. With increasing interest rate will reduce the bond prices.