Bonds are traded by banks which act as market makers for their customers, quoting bid and offer prices with a very small spread or difference between them.(See Unit 30) The price of bonds varies inversely with interest rates. This means that if interest rates rise,so that new borrowers have to pay a higher rate, existing bonds lose value. If interest rates fall, existing bonds paying a higher interest rate than the market rate increase in value. Consequently the yield of a bond-how much income it gives-depends on its purchase price as well as its coupon or interest rate. There are also floating-rate notes-bonds whose interest rate varies with market interest rates.