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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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29 votes
4 answers
6k views

Why do people buy negative interest rate bonds?

I get that people buy long term government bonds, because of how safe it is, and if there would be a recession the government would just print more money and could pay it back. But why would anyone ...
curiousTrader's user avatar
20 votes
3 answers
820 views

If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?

Normally, when you don't pay a debt, your creditors take your goods (house, car, etc). If Greece cannot pay its debt, can its creditors take Greek goods (structures, cities, industries, lands, etc)? ...
Alberto Fontana's user avatar
16 votes
4 answers
2k views

Why does China buy so much U.S. Treasury debt?

What is the reason that China buys so much US debt in form of Treasuries? How does this help the Chinese economy? It seems they are willing to give money to USA so USA economy can function better (...
Victor123's user avatar
  • 415
8 votes
2 answers
494 views

Why is the inverted yield curve a good predictor of impending economic recession?

The inverted yield curve has often been cited as a good predictor of impending economic recession. What are the reasons to explain why is it a good predictor? Is the inverted yield curve a cause or ...
curious's user avatar
  • 545
8 votes
1 answer
472 views

Show that $W_t - \int_0^t \xi_s ds$ is forward-measure-Brownian

Definitions and stuff: Consider a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_t\}_{t \in [0,T]}, \mathbb P)$ where $$T > 0$$ $$\mathbb P = \tilde{\mathbb P}$$ This is risk-...
BCLC's user avatar
  • 370
7 votes
2 answers
528 views

Why aren't perpetual bonds more common?

Most government bonds and corporate bonds have a maturity date when the principal must be repaid. While the few percents of interest every year is generally not a big problem to pay out, when a bond ...
Calmarius's user avatar
  • 347
7 votes
2 answers
131 views

How did Portugal draw down their interest rates on pubic debt?

I notice that Portugal had a very high interest rate on its national bond issues back in 2012 but since then it has drawn down significantly: How were they able to decrease the interest rate?
Lassie Fair's user avatar
  • 1,728
6 votes
2 answers
919 views

Why would China and Russia selling the US' debt ruin the economy?

I was listening to an interview with David Harvey and he mentioned that if Russia and China were to sell the debt owed to them by the US, the US economy would take a serious dive. How would they sell ...
paste's user avatar
  • 160
5 votes
5 answers
31k views

What is the difference between present value and face value?

What is the difference between present value and face value? When I search this question on Google is says they're the same in some cases and different in others. It says they are the same when the ...
Adam Staples's user avatar
5 votes
1 answer
190 views

How can the bond market be overvalued when the value of a bond is a function of interest rates?

I seem to have a major misconception in my understanding of the bond market and how interest rates and demand and supply influence valuation levels. I hope someone will be able to clarify. My ...
Constantin's user avatar
5 votes
2 answers
629 views

Limits to Quantitative Easing Programmes

I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-...
Trajan's user avatar
  • 659
4 votes
1 answer
369 views

Why does falling global bond yields signal coming deflation?

This article suggests that, "Bond markets are signalling something very nasty coming down the road at us – an all encompassing, worldwide deflation. " I cannot understand why bond yields falling ...
Trajan's user avatar
  • 659
4 votes
1 answer
130 views

Why is an inverted yield curve NOT a good predictor for recessions except in the US?

I am trying to better understand the mechanism (if there is one) behind an inverted yield curve predicting - or causing, as some would argue - a recession. In order to do that, I'm trying to ...
Candamir's user avatar
  • 163
4 votes
1 answer
96 views

What happens to undated government stocks when interest rates dip below the coupon rate?

What happens to undated government stocks (debt— known as "bonds" in the US) which pay a coupon and have an embedded call option, when interest rates dip below the coupon rate? Will the market value ...
jrrk's user avatar
  • 145
4 votes
2 answers
61 views

Why does the yield curve flatten?

I find the yield curve for bond rates confusing. For example, the current yield curve for US treasuries is shown below: The difference between the 10-year bond and the 30-year bond is tiny, just 0.15%...
Lassie Fair's user avatar
  • 1,728
4 votes
0 answers
26 views

Understanding Adam Smith's assertion about the incentives of receipt holders and bank money holders

At Chapter III of Book IV of The Wealth of Nations, Adam Smith makes the following assertion: Even in ordinary and quiet times, it is in the interest of the holders of receipts to depress the agio, ...
Paul Razvan Berg's user avatar
3 votes
2 answers
4k views

What would happen if China called in its debt?

I was talking with a friend of mine the other day about Trump putting the 35% tax on all overseas manufacturing. Couldn't this hurt those countries that have plants where US manufacturing comes from? ...
Anthony Fornito's user avatar
3 votes
5 answers
963 views

Why is national debt bad if the central bank can keep buying bonds?

When I read about national debt, it's usually about how debt is bad because with too much debt, debtors would demand higher interest rates. Eventually the government can't pay the interest, defaults, ...
Allure's user avatar
  • 1,302
3 votes
2 answers
173 views

Are quantitative easing and helicopter cash really different tactics? And how does QE relate to Modern Monetary Theory?

I've been trying to get a clear understanding of exactly what economists mean by Quantitative Easing (QE). It seems to me that different people mean different things by it. I find simplistic analogies ...
Andrew Kirk's user avatar
3 votes
2 answers
450 views

Printing Money vs. Issuing International Bonds

I'm reading Niall Ferguson's The Ascent of Money and I had a question about the economic difference between printing money vs. selling bonds to foreign entities. At one point in the book, the author ...
bugsyb's user avatar
  • 179
3 votes
2 answers
71 views

History of Municipal Bonds

Does anyone have a good book on the history of Muni Bonds that focuses on the reasons why they grew in popularity, adoption, and gov policy souring them. Background on why I need this info I am ...
Conrad G's user avatar
3 votes
2 answers
1k views

Why do bonds pay back the entire principal at maturity instead of paying it off gradually?

Bonds usually pay interest only and the entire principal is paid back at maturity. On the other hand fixed rate retail loans pay back both interest and principal such that at the end no debt is ...
Calmarius's user avatar
  • 347
3 votes
1 answer
1k views

Free Data Source for Credit Spreads?

Credit spreads are a key economic indicator. They are the difference between yields on corporate and government debt. They are a measure of confidence in the private sector, they provide insight into ...
DVCITIS's user avatar
  • 185
3 votes
1 answer
203 views

Government bonds - the most simple example

I would like to have an example of a common case of buying government bonds. (Wikipedia: it is issued generally with a promise to pay periodic interest payments and to repay the face value on the ...
Joe Jobs's user avatar
  • 982
3 votes
2 answers
424 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.)...
Richard Hardy's user avatar
3 votes
1 answer
303 views

Which sanction against Russia creates the least side effects on Western economies: SWIFT disconnect or denying selling of government bonds?

This NBC article suggests more fragility to sanction Russia by barring its central bank to sell government bonds as opposed to disconnecting it from the SWIFT, where there is virtually an EU + UK + US ...
Alexei's user avatar
  • 251
3 votes
1 answer
56 views

Can debt to GDP ratio be reduced transfering debt to local autorities?

It is my understanding that not only government but also local authorities issue bonds. This answer on Money and Finance Stack Exchange suggests that such debts are not accounted in the computation of ...
pinpon's user avatar
  • 174
3 votes
2 answers
50 views

Why is the ten year interest rate lower for Spain/UK bonds than for US?

Take a look at the government bonds interest rates, https://www.marketwatch.com/. For the US is 2.9, and for Spain and UK are 1.5 and 1.1 respectively. Spain is an economy with high unemployment, a ...
HazellFR's user avatar
3 votes
1 answer
262 views

Why does bond price tend to 100?

For example: if a bond got a 1% coupon, and tomorrow is the maturity date, so tomorrow I will have 101. So, in my opinion a bond price should tend to notional+coupon, because today I want this amount ...
Castore's user avatar
  • 31
3 votes
1 answer
78 views

Could a hike in interest rates cause a country to be unable to pay back it's debt burden?

Sometimes I read in news articles, that a central bank can't hike the interest rates much higher, because then the government would be unable to pay the interest rate burden of it's government debt. ...
eztam's user avatar
  • 133
3 votes
1 answer
174 views

Connection between negative interest rates and negative bond yields

In an answer to one of my other questions: Why does falling global bond yields signal coming deflation, the answerer states: Whereas central banks set rates by policy, long term bond yields are ...
Trajan's user avatar
  • 659
3 votes
2 answers
238 views

Can the Federal Reserve permanently decrease money supply?

As far as I understand it, the primary way the Federal Reserve decreases the money supply is by selling bonds–the entities buying these bonds give up their cash for them and thus M0 is decreased. ...
lurning too koad's user avatar
3 votes
2 answers
111 views

Why does Samuelson say common stocks are better than bonds and preferred stocks during inflation?

I’m reading the first edition of Paul Samuelson’s Economics (1948). In Chapter 6, “Business Organization and Income,” after describing bonds, preferred stocks, and common stocks, he writes: To test ...
symplectomorphic's user avatar
3 votes
1 answer
71 views

Negative probabilities - Can we have negative payments in bonds?

In Half of a Coin: Negative Probabilities, the author mentions bond duration. Suppose we have payments at times $t = 1,2,...,n$ denoted respectively by $R_1, R_2, ..., R_n$ and the discount factor is ...
BCLC's user avatar
  • 370
3 votes
4 answers
358 views

What happens when government bonds purchased as part of central bank quantitative easing (QE) reach maturity?

Does the central bank ask the government to pay or are they rolled over?
sba222's user avatar
  • 831
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 ...
KarmaPeasant's user avatar
  • 1,135
3 votes
1 answer
99 views

What is the effect on GDP when foreigners buy lots of domestic bonds?

I am trying to figure out the effect on GDP of foreigners buying lots of domestic bonds. From what I understand, when foreigners buy lots of domestic bonds: They need to convert their foreign ...
Flux's user avatar
  • 553
2 votes
2 answers
2k views

Who owns German debt?

I know that Germany has huge external debt. I don't know how to find out which entities own this and especially which country they belong to.
pablo's user avatar
  • 51
2 votes
3 answers
95 views

What is the mechanism for when the fed purchases a gov't or corporate bond from a non bank?

My understanding is when the fed buys a bond from a bank they use bank reserves (bank reserves are swapped for a bond). How does the transaction differ when a non bank (ex hedge fund) is involved?
A Mac's user avatar
  • 21
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://...
dharmatech's user avatar
2 votes
2 answers
87 views

Relationship between default risk and value of bond

In particular Mortgage-backed securities. I've read from a book that underestimating the risk of default is tantamount to overestimating the value of the bond, giving rise to a bubble in MBS. I'm ...
sendmeat's user avatar
2 votes
3 answers
349 views

What do interest rates tell us about the state of an economy?

I seem to have a misconception about what interest rates mean. On one hand, they signal how high a government's demand for money is, because if a government is ever in any serious need of money, they ...
J. Mini's user avatar
  • 103
2 votes
1 answer
52 views

Bond Price expression

I've researching some mathematical finance and I've stumbled upon something I can't seems to find sources on. I'm probably overlooking something, but I hope someone can enlighten me and give me some ...
Marc Allan's user avatar
2 votes
2 answers
88 views

Clarification on amortization of constant payments

I have found this formula on wikipedia : $$P=C_k(1+i)^ {(n-k+1)}$$ which describe the constant payment that has to be paid every year ($C_k$ is the part of the initial loan that is extinguished with ...
Tortar's user avatar
  • 282
2 votes
1 answer
871 views

Why is the Bank of Japan buying all the government bonds?

I've recently read that the Bank of Japan is continuously buying government bonds. Apparently, at the rate they are going, the BoC will own all the bonds by 2026, which means the government will ...
laurent's user avatar
  • 121
2 votes
1 answer
57 views

How did downgrading bonds contribute to Greek crisis?

According to an article I read, one of the steps that was used to contribute to the Greek downfall was that bankers downgraded the bonds of the country. This immediately makes the interest rates (“...
erotavlas's user avatar
  • 131
2 votes
1 answer
38 views

Are there any Sovereign Debt Guarantees, apart from those issued by the US?

The US has been undertaking an irregular form of foreign aid, Sovereign Bond Guarantees, which entails guaranteeing some of the public debt of their allies, source here: https://www.cgdev.org/blog/...
Michal Karlubik's user avatar
2 votes
3 answers
133 views

When the federal reserve buys bonds or other assets from banks, do the banks make a profit?

My understanding is that the federal reserve is injecting money in the market by buying bonds and debt from banks. Do the banks make a profit on the sale of their bonds or corporate debt to the feds?...
Cynara's user avatar
  • 23
2 votes
1 answer
81 views

The government is issuing massive debt for coronavirus relief - why aren't interest rates rising?

As I understand it, the US Treasury Department issues bonds to pay for the government's coronavirus rescue spending. I might have thought that such a large input to the fixed income market on the ...
sudo-nim's user avatar
  • 123
2 votes
1 answer
39 views

Yield curve flattening- abstract question

I just stopped and thought about the current economic state, and yield curve in particular. As you can see here, the yield curve is starting to flatten, means longer bonds demand is high, while short ...
gabi's user avatar
  • 155

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