Bond holders who collect coupons and hold the bonds until maturity are not subjected to market volatility, as the principal and interest payments occur to a pre-determined and well-defined schedule.

However, bond holders who buy and sell their bonds before maturity are subjected to a number of risks; the most significant of which is changes in national interest rates. When these interest rates increase, the value in the existing bond falls, as any newly issued bond will pay a lower yield. So we can see there is an inverse correlation between bond prices and interest rates. As interest rates fluctuate, as a natural part of a country’s monetary policy, the bond market experiences volatility in a reaction to this activity.