The bond demand curve shifts due to changes in demand factors of a bond rather than changes in quantity demanded of a bond. A bond curve may shift to the left due to decrease in wealth, increase in expected inflation, increase in expected future interest rate, increase in riskiness of the bond or decrease in liquidity of the bond. In any of these cases, the attractiveness to buy bonds decreases and hence, bond demand curve shifts to the left. The impact on bond prices can be understood with the help of a diagram.

As can be seen in the diagram, shift in demand curve leads to fall in bond prices. The reason for the fall is the inverse relationship between demand of the bond and prices of the bond.

Moreover, bond prices and interest rates bears a negative relationship. Thus, as bond demand curve shifts to the left, the bond prices falls and interest rates rises.

The correct option is B.

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