Bonds:Prices and Yields

Jun 12, 2024

Bonds:Prices and Yields

Aspect	Description
Price	The current market value of the bond.
Interest Rate	The fixed annual rate promised by the issuer.
Yield	The annual interest rate, fluctuates based on price, interest rates, and issuer creditworthiness.
Secondary Market	Platform where bonds are traded after initial issuance.
Maturity	Duration until the bond reaches its full value and is repaid.
Interest Rates Rise	Bond prices decrease, yields increase. Existing bonds must compete with new bonds offering higher interest rates.
Interest Rates Drop	Bond prices increase, yields decrease. Existing bonds become more attractive as they offer higher rates compared to newly issued bonds with lower interest rates.

In summary, the price and yield of a bond have an inverse relationship. When interest rates rise, new bonds with higher rates make existing bonds less attractive, lowering their prices and raising yields. Conversely, when rates drop, existing bonds become more appealing, raising their prices and lowering yields

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