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Questions tagged [bonds]

Bond markets and legal aspects of bonds. For government debt use the tag "government debt" unless the fact the the debt is in the form of bonds has significance.

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68 views

Difference in spot rates and YTM for government bonds

I'm preparing for CFA L1. I assumed that 3 year spot rate of treasury to be equal to the YTM of 3 year treasury bond. The Schweser notes define spot rate as below Yields on zero-coupon government ...
3 votes
2 answers
214 views

Is the money market model based on assumption of no interest rate targeting on the part of the central bank?

This is quote from Gregory Mankiw's macroeconomics text about mechanism of formation of the interest rate in the money market model: How does the interest rate get to this equilibrium of money supply ...
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2 answers
305 views

How does the central bank reduce money supply by selling bonds if the buyer of the bonds can use bonds as currency?

When the central bank wants to reduce the money supply, it can sell bonds. That way, the money supply reduces by the amount paid for the bonds. The buyer will have bonds instead of cash. The bonds can ...
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2 answers
57 views

Bond Prices, Interest rates, Demand for bonds

I know about the inverse relationship between bond prices and interest rates. However, when we talk about Liquidity Preference Theory, there we mention that an increase in interest rates leads to more ...
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2 answers
598 views

Correlation between nominal bond returns and growth

I read the following passage and the bolded section has me confused: In theory, assets earn a low (or negative) risk premium if they tend to perform well when the economy is weak. When growth ...
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1 answer
78 views

Why is the portfolio weight of the risk-free asset capped at 1?

I am reading Investment Science by David Luenberger, and in it he creates a portfolio with a risk-free asset and a risky asset. α is the weight of the risk-free asset, and he sets α ≤ 1. Why is that? ...
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Bond Futures Invoice Price vs Futures Price

If I buy a bond Futures I have to pay the current Futures Price but at settlement day I pay the invoice price(=settlement price on position day*conversion factor + accrued interest) which is actually ...
1 vote
1 answer
57 views

Have governments ever defaulted on its public domestic debt or treasury bonds?

Recently, some countries have experienced hyperinflation such as Lebanon, Zimbabwe, and Venezuela. Has there ever been a time when a government defaulted on its treasure bond payments due to a country'...
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22 views

How much of a bond do the market makers typically hold?

Market makers facilitate a bond issuance by providing somewhere to both buy and sell the bonds of a bond issuance. I'm trying to understand how the market makers (i.e. the security underwriters such ...
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28 views

How important is the underwriter syndicate of a bond?

When it comes to bond issuance, how crucial is the involvement of an underwriter syndicate in the process? They seem it be a bit like "hit-and-run" agents who facilitate the issuance, but ...
1 vote
0 answers
24 views

Bond syndicates and systemic risk

I'm looking at both bond syndicates (groups of banks underwriting bond issuance), and also the holders of those bonds (groups of investors that hold those bonds for some time, potentially selling them ...
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1 answer
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Duration - why do we measure it the way we do?

Let B(y) be the bond price as a function of yield to maturity. If I understood correctly, duration can (roughly) be understood as a measure of the change in $B in response to a change in y. What I don'...
1 vote
2 answers
203 views

Is the yield on high coupon-bonds more likely to be higher than on low-coupon bonds when the term structure is upward or downward sloping?

Currently I'm learning about the principles of corporate finance. More specifically I'm learning about valuing bonds. I have the follow question: Is the yield on high coupon-bonds more likely to be ...
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1 answer
102 views

Why are the YTMs of TIPS of longer maturities more sensitive to current interest rates and inflation rates?

According to this website, the yields of TIPS of longer maturities are greater than that of TIPS of shorter maturities. It seems counterintuitive since yields of longer-maturity bonds, which are based ...
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1 answer
149 views

Relationship between bonds and interest rates

I read the following sentences from the book about the bond and interest rate. First explanation goes like this: When bond traders talk about yield they are usually referring to the YTM [Yield to ...
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85 views

In an inverted yield curve, why do short term yields go higher?

I understand the yield curve and why short term bonds have lower yields than long term bonds. I also understand why in an inverted yield curve, long term bonds have lower yields -- it is because ...
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1 answer
265 views

Euro BUND Future CTD Bond

I'm trying to understand valuation of the Euro BUND Future. As to my understanding, the price of the future should be: The price of a government bond issued by the Federal Republic of Germany That ...
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1 answer
56 views

General mechanism of bond price and real interest rate movements

Jeremy Siegel writes in "Stocks for the long run" that when better than expected economic data is released bond prices fall and real interest rates go up. Why do bond prices fall with ...
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2 answers
238 views

How does a bail bondsman make a profit?

I hope I'm asking this on the right site and used the right tags. When looking into the concept of bail bonds on Google, I was told bail bondsmen are paid a fee to post a defendant's bail- but also ...
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2 answers
98 views

Why the US wont default on its foreign debt?

Ok sorry guys, this might be a "simple question", but simple questions can lead to big insights nevertheless. So I want to be an investor in the global stock market, and the biggest part of ...
-2 votes
2 answers
267 views

MMT and bond sales

Proponents of Modern Monetary Theory claim that bond sales are unnecessary and only help central banks set interest rates (which should be 0% anyway according to theory) and to provide safe interest-...
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1 answer
80 views

What is a European Bond and how is its Yield Calculated?

I've become a bit confused at the concept of a European(or Eurozone) Bond. I can't seem to understand if this is just a weighted average of all the EuroZone countries government bond yields or if this ...
-1 votes
2 answers
52 views

What will happen to the selling prices of homes if commercial banks are mainly financed via bonds?

Someday people who have no need for loans might never have a need for a bank. For example, I might pre-pay for smartphone wireless data or pre-pay for coffee. If I owe you 5 USD perhaps someday I ...
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14 views

In bond markets, how does the number of banks in an underwriter syndicate grow as they share risk on larger deals?

If I look at a large collection of underwriter syndicates (underwriting green bond issuances), I can see there is, on the whole, a quadratic relationship between the value $v$ in USD that the ...
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50 views

Do banks influence each other's decisions to issue bonds, via a dependency graph?

This questions is about how to model the growth of a bond market. Consider a large set of banks, such as HSBC, BNP Paribas, etc, that can enter into syndication (i.e. join together in small groups) to ...
1 vote
1 answer
58 views

How can the Bank of England hold government debt through quantitative easing?

In this article the Economist writes about the BoE: "in the past decade the bank’s successive rounds of quantitative easing (qe), whereby it creates new money to buy bonds, have left it holding ...
1 vote
1 answer
45 views

How do governments rollover debt with bonds?

Here is a link to a article I've been reading: https://www.stlouisfed.org/on-the-economy/2021/march/servicing-national-debt In this article it says: "While household debt must eventually be ...
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0 answers
37 views

Do borrowing costs go down as a currency depreciates?

I was watching a video (https://youtu.be/2CVOfzuqoY4) and got very confused by the following sentence at 1:18: "Usually when an established currency depreciates in value, borrowing costs in that ...
1 vote
1 answer
199 views

meaning of face value as a percentage

What does it mean conceptually when the face value of a bond is equal to 100%? What does it mean when the FV is higher or lower 100%
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1 answer
61 views

Eurodollar exercise

I'm trying to solve an exercise with Eurodollar and deliverable bonds. This is the text in matlab Basically there are two Bonds A and B and I need to find a few things about them. I use the formula ...
1 vote
1 answer
334 views

Chain effects when Money Demand is greater than Money Supply

Here is an example graph of Money Market Equilibrium The chain effects when interest rate is 8% are : Excess Demand for Money => So, People would sell Bonds => Bond Prices goes Down => ...
2 votes
1 answer
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Do U.S. Fed Interest Rate hikes and bond yields have a causal effect on each other?

I understand that there is a strong causal effect between U.S. Fed rate hikes or decreases on U.S. bond yields. But does the relationship also go the other way, e.g. U.S. Fed hikes/decreases in ...
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3 answers
132 views

Why do yield spikes reflect badly on tech stocks

Yield spikes are a reflection of market equity valuation. How I interpret this is that there’s real fear that some companies in the market won’t be able to pay their debt. Therefore, bonds trade cheap,...
1 vote
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40 views

Data for on/off-the-run treasury spreads

I would like to find the latest data for the spread between on-the-run and off-the-run treasuries. Not too picky about the tenor, maybe 2yrs and a few longer ones. I've come across a Fed paper and ...
1 vote
1 answer
75 views

How do changes in US government bond yields impact the USD exchange rate?

I would like to understand how changes in US government yields impact the USD exchange against other major currencies, eg. the Canadian dollar or the yen. My question assumes that the bond yields ...
3 votes
2 answers
428 views

Does the initial bond price equal the face value?

When a bond is issued, does the buyer necessarily pay the face value? (I am not talking about consols or zero coupon bonds, just about an ordinary bond that, for simplicity, pays a coupon once a year.)...
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2 answers
355 views

Why is quantitative easing compared to "money printing"?

Context Some questions on this site ask about the difference between "money printing" and "quantitative easing". I am experiencing some difficulties to understand what some of the ...
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3 answers
72 views

What are the consequences of an increase in interest rates for States?

As inflation is high, central banks such as the FED and the ECB hike rates. One of the consequences is that the stock market is falling and in particular companies having a lot of debt (such as ...
1 vote
2 answers
223 views

Price v return on gilts

Please forgive a very basic question from a non-economist, just trying to understand the current chaos in the UK markets. I gather that return on gilts (Government bonds) is in inverse proportion to ...
0 votes
2 answers
221 views

How to Calculate Bond Yields

According to Bloomberg, the coupon rate on a 10-year UK government gilt is 4.75%. Bloomberg also states that the yield is currently 0.47%, and the market price £144.57. The UK Debt Management Office (...
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2 answers
136 views

Understanding Bond Yields

According to Bloomberg, the coupon rate on a 10-year UK government bond is 4.75%. Bloomberg also states that the yield is currently 0.55%, and the market price £143.51. But if the following formula ...
1 vote
1 answer
68 views

Why are U.S. treasury yields currently rising when the U.S. economy has likely entered a recession?

I understand that when investors’ confidence level is low, the demand for Treasuries will increase, hiking up Treasuries’ prices and lowering their yields. As a result, declining Treasury yields are ...
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What are the practical applications of infinite series to Perpetuity?

I've already know that you can derive present value formula of a perpetuity through infinite series. But, one can argue that it's not really practical since you can just use the derived formula. So, I ...
0 votes
1 answer
795 views

Why are the yields on short-term bonds more volatile than those of long-term bonds?

Why do short term bonds have higher yield volatility but lower price volatility? I believe because of what we call duration prices of long terms bonds are more volatile. But what does yield volatility ...
1 vote
1 answer
78 views

Why Increase in Money Supply Reduces Interest Rate in Money Market?

I understand the fact the Increase in Money Supply reduces the interest rate in Money Market. But these two explanations are confusing me a lot. I'm not able to understand which is correct. Reason 1 ...
2 votes
1 answer
227 views

Treasury yield data

Interest rates on treasury.gov This treasury.gov page lists the treasury security interest rates: Interest rates on FRED Graphs for each of the above treasury securities are also on FRED: https://...
1 vote
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23 views

Money-market model: Income rises, bond prices fall. But if income rises, saving increases — in bonds. So why does rising income lower bond prices?

According to the money market model that determines the equilibrium interest rate at which the demand for money in the economy equals the supply of money: when the money demand curve shifts right for ...
-1 votes
1 answer
672 views

How does buying bonds decrease interest rate?

I am trying to understand how interest rates are influenced by central banks purchasing government bonds. When Googling "how does buying bonds increase interest rate" I find the following: ...
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175 views

How to calculate specific treasury bond yields

I am having trouble finding the correct answer to this question: Question: What would the yield be on a 1.75 percent, $1,000, 10 year Treasury bond if the market price of the bond was 950 dollars? I ...
1 vote
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Can the Equity Premium Puzzle apply equally to bonds?

Mehra and Prescott (JME, 1985) use the consumption-based asset price model to express the expected spread of equity returns over, e.g., a risk-free Treasury bond, as \begin{equation*} \mathbb{E}...

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