That is, when yields rise the price or value of bonds declines, and in the other direction, when yields are falling, bond prices rise.
Dehn calculated that investors now holding a 10 year Treasury when yields rise to 6.5% from the current level will lose 34% on the bond price.
When bond yields rise, their prices fall, eating into any gains from the security's coupon.
Tipping points are clearest when bond yields rise sharply, as they have in Greece, Ireland and Portugal, making their debt too expensive to keep rolling over.
Excluding dividend increases, yields rise when stock prices fall, underscoring the core of the Dogs strategy.
"When Treasury yields start to rise, these stocks lose their luster, " said Robert Pavlik, chief market strategist at Banyan Partners.
Yields fall when bond prices rise.
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Mr. Gross has bought Treasury bonds in recent months to extend duration, a shift from earlier this year when his bets that Treasury yields would rise were hit by the flight-to-quality flows.
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At best there is a precautionary case: without fiscal tightening, the Tories fear, bond yields are bound to rise, especially when the Bank of England stops buying gilts.
In the other direction, bonds bought when their yields are low will see their value in the market decline if yields begin to rise, because investors will pay less for them than for the new bonds that will give them a higher yield.
The increasing likelihood of a bailout agreement between Hungary and the International Monetary Fund have pushed Hungarian bond yields, which decline as prices rise, to around 7% from about 10% last year when Legg Mason first bought in, Mr. Smith says.
When QE 2 began , we saw the expected rise in economic growth and concerns regarding inflation trump QE 2 causing yields on Treasuries to actually increase.
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