I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields:
Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing investments, a reduction in IOER increases demand for bonds and therefore increases bond prices and reduces yields. Main idea: lower interest rates cause lower bond yields.
Economic growth occurs in low interest environments, so number one's "main idea" should hold: lower interest rates cause lower bond yields.
Economic growth leads to rising bond yields. From CNBC article:
"Bulls like Tchir insist that, in this case, the rise in bond yields is not a negative for stocks: “This time the rise in yields is coming from economic growth, stimulus, and infrastructure. All of that is good for stocks. That’s why this rise doesn’t scare me too much.”"
- During times of slowing economic growth, demand for money decreases leading to reduced demand for loans and a resulting decrease in interest rates. This environment makes investors nervous so bonds become more attractive, driving up demand and therefore increasing price and reducing yield.
I am very confused about the relationship between interest rates and bond yields. I thought they moved in the same direction, but the above is confusing me. Any clarity? Thanks!