Quote:
Originally Posted by wayner
I find this interesting.
I always that thought that bond "funds" went up as a result of interest rates falling.
(if rates are falling, and if you need the money out of your bond, I'd like to buy your bond that you are holding that pays a higher rate than the going interest rate, ad if I expect rates to fall further, I may be willing to pay a bit more for it).
I haven't looked at new issue bonds though. For them I thought that they chased the interest rates downward, just paying a bit more than the bank account interest rates to still make them appealing.
Thoughts??
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I was looking not at the value of existing bonds, but interest rates of U.S. Treasury Bonds.
Think of it this way, as a bond issuer(not buyer) you want the lowest interest rate you can issue.
The more people that want to buy the bond you issue, the lower the rate.
If everyone is trying to buy short term bonds to keep their money mobile and agile, then to get someone to buy a long term bond there must be a higher interest rate to attract buyers.
So you're speaking of bond value on the market relative to the balance of the bond compared to interest rates on newly issued bonds.
I am looking for what controls the rate on newly issued bonds.
For example, if there were no control on newly issued U.S Treasure bond interests except what the government set it, and negative yield curve was considered a recession marker.
Why would the government that controls the yield rate of U.S. T. not keep it positive in order to keep this signal from making them look bad?
So the government must feel some form of pressure to set the rates on new U.S. Treasury bonds. Does this make sense what I'm looking at?
Its not about buying used bonds, but the interest rates of freshly issued bonds.