Timeline for Bond Prices, Interest rates, Demand for bonds
Current License: CC BY-SA 4.0
4 events
| when toggle format | what | by | license | comment | |
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| Mar 29 at 23:11 | comment | added | 1muflon1♦ | Account. If the price for the bond comes down below 909.09 you basically have infinite money glitch, just borrow at the 10% interest buy the bond and pay the money back, so then the demand for bond would be infinite. Increase in interest rate does shift consumption (and saving is inverse of consumption) intertemporarly precisely because it means that relative price of consuming is now higher and thus relative price of saving is lower (we are moving along the demand curve). | |
| Mar 29 at 23:05 | comment | added | 1muflon1♦ | @festakonik not if the new bonds are issued at the same coupon rate as the old bonds. Again bond is a fixed income security. A demand for a fixed income security will be always 0 if price is above present value and infinity if it’s below. Consider a practical example, a Swiss (or in other words risk free) zero coupon bond with face value of 1000 with maturity of one year. If the interest rate in an economy is 10% then no matter how large the demand is above price 909.09 nobody will want to buy the bond because if interest rate is truly 10% you could just park the same money in some savings | |
| Mar 29 at 19:59 | comment | added | festakonik | Thank you. But doesn't it mean that the demand for newly issued bonds will increase thereby rising its price? I understand the inverse relation between interest rates and bond prices in case of preexisting bonds. | |
| Mar 29 at 19:11 | history | answered | 1muflon1♦ | CC BY-SA 4.0 |