https://i.imgur.com/NnCAjY2.png
How come only the yield increases but not the coupon payments aswell?
Unless you’re told otherwise, the coupon payments are fixed. (Hence: fixed income.)
Coupon payments are set when the bond is issued and they don’t change throughout the life of the bond. However, yield can change based on market interest rates. If interest rates go up to 10% and you are stuck with a bond paying 5%, nobody is going to want your bond unless you sell it for less. You’ll have to reduce the price of your bond so that the yield is 10%, otherwise people would just buy a bond elsewhere.
So if the yield is going up, and your coupon is staying the same (which it pretty much always does) that means the value of your bond is going down.
Just to add to SpareTime’s comments, coupon payments do not change for fixed-rate bonds. They do, however, change over time for floating-rate bonds (such as those that pay interest with reference to LIBOR). Unlike fixed-rate bonds, floating-rate bonds have very little interest rate risk. This is because their coupon payments adjust to changes in the benchmark rate.
BullishBear Finance