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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22
votes
4answers
4k 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 ...
19
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3answers
631 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)? ...
14
votes
3answers
1k 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 (...
8
votes
1answer
347 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-...
7
votes
2answers
387 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 ...
7
votes
2answers
869 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 ...
7
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2answers
113 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?
6
votes
2answers
418 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 ...
5
votes
5answers
18k 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 ...
5
votes
1answer
107 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 ...
5
votes
2answers
46 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%...
5
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2answers
420 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-...
4
votes
1answer
245 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 ...
4
votes
1answer
83 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 ...
4
votes
1answer
80 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 ...
3
votes
2answers
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? ...
3
votes
3answers
705 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, ...
3
votes
2answers
51 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 ...
3
votes
2answers
44 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 ...
3
votes
1answer
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 ...
3
votes
1answer
86 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 ...
3
votes
1answer
62 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. ...
3
votes
1answer
122 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 ...
3
votes
2answers
69 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 ...
3
votes
1answer
36 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 ...
3
votes
1answer
66 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 ...
3
votes
1answer
38 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 ...
2
votes
2answers
74 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 ...
2
votes
2answers
852 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.
2
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2answers
65 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 ...
2
votes
2answers
202 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 ...
2
votes
2answers
69 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 ...
2
votes
2answers
42 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 ...
2
votes
3answers
250 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 ...
2
votes
1answer
750 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 ...
2
votes
1answer
51 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 (“...
2
votes
3answers
39 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?...
2
votes
1answer
28 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 ...
2
votes
1answer
139 views

In quantitative tightening do banks have no choice in refusing to buy bonds from Central Banks (mainly Federal Reserve)

In light of the recent unease about interest rate rise, I've been taking a growing interest in how our economy actually works, something I've been trying to avoid. So this forum is a way for me to ...
2
votes
1answer
86 views

Do institutions buy debt with credit?

I am reading Money Power book, from 1932 (http://www.worldcat.org/title/money-power-and-human-life/oclc/3783026). The author explains how the War Loans in the UK worked. He says that the government ...
2
votes
1answer
202 views

Bond market vs stock market during crisis

Why does bond market not change as much as the stock market during financial crisis? On the picture we see the development of the two markets
2
votes
1answer
163 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 ...
2
votes
1answer
46 views

JNK and SPY price movements question

I am looking at the graph of JNK and SPY prices close prices since 2008. From 2008 to 2011, the two prices seem to move together. However, somewhere in the beginning of 2012, the prices all of a ...
2
votes
1answer
46 views

U.S. Treasury defaulting on its bond obligations to China

I was listening to a podcast featuring Michael Lewis (author of Flashboys and Moneyball), who mentioned a black swan scenario where the administration would threaten to selectively not pay its ...
2
votes
1answer
47 views

How printed money gets to the commercial banks?

can you please clarify this for me? Gov't need money for deficit elimination, so they issuing bonds (lets say 1T, 10 years, 2%). Fed is buying the bonds with fresh money, so the gov't now has new 1T$ ...
2
votes
4answers
376 views

Why is it a problem if China starts “dumping” US Treasuries? What does it mean to be dumping?

China has 1.2 trillion dollars worth of us treasuries. Why would it be a problem for them to get rid of all of them? Why would that destabilize the US economy?
2
votes
1answer
805 views

Why obligation acceleration triggers Credit-Default Swaps (CDS)?

ISDA Credit Event definitions state that CDS can be triggered in an event of Obligation Acceleration. What does that mean? If for example, a country pays a bond 1 year prior to maturity are CDS ...
2
votes
1answer
71 views

Making mathematical sense of the expression for realized bond return

I came across the following statement regarding the realized 10-year maturity bond's return over a year: The realized bond return (H) over a year has two components: the yield income earned over ...
2
votes
2answers
105 views

Federal Reserve Interest

Banks have higher interest rate for debts than deposits to make money but does the U.S. treasury have the same interest rate for loans and deposits?
2
votes
1answer
44 views

Do corporations outside of the Eurozone issue bonds in Euro?

Do corporate issuers outside of the Eurozone (as in the wider EU area, or non-EU countries) issue bonds in Euros (EUR)? How relatively common is this, compared to issuing bonds in USD, if you are a ...