Yield & Interest - Relation

Yields and bonds 

Yield and bond price are inversely related. So, a rise in price will decrease the yield and a fall in the bond price will increase the yield. In fact, both inflation as well as the interest rate tends to have an impact on the value of a bond. Usually, there is an immediate and predictable effect on prices of bonds with every change in the level of interest rates. When the prevailing interest rates in the market rise, the prices of outstanding bonds will fall, to equate the yield of older bonds in line with higher-interest new issues.

This happens as there would be very few takers for the lower coupon bonds, resulting in a fall in their prices. The prices would fall to an extent where the same yield is obtained on the older bonds as is available for the newer bonds. 

In case the prevailing interest rates in the market fall, there is an opposite effect. The prices of outstanding bonds will rise, until the yield of older bonds is low enough to match the lower interest rate on the new bond issues. These fluctuations in bond prices contingent with changes in the interest rates tend to ensure that the value of a bond will never be the same throughout its life. A bond's value is likely to be higher or lower than its original face value, depending on the market interest rate, the time to maturity and its coupon rate.