In case the price of bond increases, the bond yield will fall.

Statement 1 is correct. The selling price of the bond may go from Rs 100 to Rs 105 or Rs 110 because of competitive bidding by the two buyers. Importantly, even if the bond is sold at Rs 110, the coupon payment of Rs 5 will not change. Thus, as the price of the bond increases from Rs 100 to Rs 110, the yield falls to 4.5%. Thus, in case the price of bond increases, the bond yield will fall.

There are times when this bond yield curve becomes inverted. For instance, bonds with a tenure of 2 years end up paying out higher yields (returns/ interest rate) than bonds with a 10 year tenure. Such an inversion of the yield curve essentially suggests that investors expect future growth to be weak.