If interest rates rise, bond prices usually decline. If interest rates decline, bond prices usually rise.
In a rising interest rate environment, the market price for an existing bond will decline because new bonds will be issued offering higher coupon rates, making existing bonds less desirable.
Conversely, when interest rates decline, existing bonds become more desirable because they offer higher coupon rates than new bonds issued in a lower interest rate environment.
If an investor decides to sell a bond, prior to it’s maturity date, they may experience a capital gain or capital loss.
For bonds held within a taxable account, the purchase price is of particular importance because the investor’s net after-tax investment returns are enhanced bonds purchased below the $100.00 par price (described as a discounted price) and eroded by bonds purchased above their par price (described as a premium price).