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Googling "what makes a bond yield go up" returns headlines like "bond yields go up after positive jobs data.". But how does the latter affect the former? I thought the interest rate set by the fed was the main driver -? If so, does that mean the interest rate was raised because jobs data was positive which then made bond yields go up? What am I missing here? Is there an algorithm managed by treasury analogous to stock pricing managed by algorithms ran by exchanges?
it is not all up to the Fed,Fed may hold the rate low by buying all the garbage paper,but investors sense recovery and inflation and refuse to pay too much at the Treasury auctions .
There is no fixed algorithym,when you go to the store and see something overpriced,would you
buy at the asking price anyway
bargain for a lower price
OR
just walk away
Googling "what makes a bond yield go up" returns headlines like "bond yields go up after positive jobs data.". But how does the latter affect the former? I thought the interest rate set by the fed was the main driver -? If so, does that mean the interest rate was raised because jobs data was positive which then made bond yields go up? What am I missing here? Is there an algorithm managed by treasury analogous to stock pricing managed by algorithms ran by exchanges?
Thanks.
When a bond is issued, it carries a fixed "coupon" (interest) rate. That rate stays the same until the bond matures. However, the market value of the bond fluctuates up and down to compensate for changes in the interest rate in the bond market.
For example, a bond with a face value of $1,000 may have been issued initially with a rate of say 3% per year. That bond will continue to pay 3%, (i.e. $30) per year in interest to whomever owns the bond until the bond matures. However, due to changes in interest rates for various reasons, the bond may be worth more money or less money than the initial $1,000 face value to reflect the change in current interest rates.
If current rates go UP from when the bond was issued, the bond will be worth less than the $1,000 face value. OTOH, if interest rates drop compared to when the bond was issued, then the bond will be worth MORE than its $1,000 face value. Either way, when the bond matures, the holder of the bond will get $1,000 regardless of how much he paid for it.
Also, whoever holds that bond at any point in time will get $30 per year in interest regardless how much he paid for the bond. Adjusting the price that the bond sells for in effect changes the effective interest rate of the bond to maturity.
None of these replies answered the question. The answer is, the bond market drives interest rates up and down. There are various factors which influence the bond market... but its supply and demand at the end of the day. And yes the FED can influence this.
The Fed,supply and demand and CREDIT WORTH-
If Drexel shoves some junk bond in y our face issued by TB Pickens ,coupon rate 9 1/2 % while junk should fetch 15%,would you EAT IT !
None of these replies answered the question. The answer is, the bond market drives interest rates up and down. There are various factors which influence the bond market... but its supply and demand at the end of the day. And yes the FED can influence this.
CHAS83 did.
thanks
-bonds could become worthless too-Russian Czar bond is one example
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