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Why does the narrowing of trade deficit cause an increase in bond prices? I do understand that narrowing of trade deficit leads to narrowing of capital account surplus. Also, investor confidence rises which might push the demand for bonds high and cause an increase in bond prices?

But is there any other reason?

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lower deficit means more export, so more foreign currency is coming into the country. Part of this goes to buy bonds. More demand means higher bond prices. People in the countr might feel richer too, because there is more exports, so more income to them. They might buy more bonds too.

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