Bond yields and bond prices are inversely correlated. When the yield goes down, the price goes up. On the other hand, when the price goes down, the yield goes up. This may seem confusing at first glance, but it starts to make a lot more sense when you consider the supply and demand characteristics of bond investing.

Investors flock to bonds in uncertain times. This is because they tend to offer a higher yield than holding cash, and if the issuer has a high credit rating, they can be considered almost as safe as being in cash. But when there’s more demand than supply (i.e. everybody wants to invest in bonds), then the yield drops because the issuer has no trouble raising cash in such circumstances.

Conversely, when nobody wants to invest in bonds, perhaps because other areas of the market such as stocks are performing well and so look much more attractive, then the only way to attract capital to the bond market is to raise the yield to a level that becomes attractive to investors.

This is why, when bond yields are rising, the bond market is thought to be in trouble, and when bond yields are falling, the bond market is thought to be in good health. Of course, this can be taken to the extremes. During the pandemic, bond yields reached all-time lows due to how overcrowded that particular trade was. With all bets off the table at the time, the only viable place to have your money for a period of time was either in cash or bonds, and that’s largely why the US dollar appreciated so sharply, while bond yields fell so low.