If you bought 10yr’s at 3.5% and new issues were going for 4%, you would have to lower the price of your bonds to make them attractive to a potential buyer. (After all your notes are paying below going rate, thus less attractive)
The thing to keep in mind here is that the price of an existing bond goes down as interest rates go up, but if interest rates go down, the price of an existing bond goes up. Thus, interest rates and the price of the bond go in opposite directions.
The consequence of this, is that although the bond is insured by the govt, and the interest is guaranteed, the price you can sell the bond can fluctuate. And that fluctuation is inverse to the current interest rates.
