Bonds.

[DontCostYaNuffin]

Bonds are essentially forms of savings and loans, (governments, banks or companies borrow money from you) and the value of bonds are determined by the level of interest. Can someone explain to me why an increase in interest rates leads to a fall in bond prices, whereas the opposite is true for savings? Since an increase in interest rates leads to a higher savings turnover.

 

[DontCostYaNuffin]

@orange @purplerose

You both seem the most financially savvy on here.

 

[purplerose]

because your old bond wont give you the new value. your old bond rate is locked in.

 

[DontCostYaNuffin]

because your old bond wont give you the new value. your old bond rate is locked in.

I read somewhere that the reference obligation coupon is fixed but that you can sell your bond whenever you want to.

Say you buy a $100 bond for 2 years at an interest coupon rate of 4% and you decide to sell your bond after a year and buy one with an interest coupon rate of 10% You are even willing to sell your old bond for $ 96 because this new investment will yield $96+ $9.6 = $106.50 within a year, whereas your old one only made you $104. There will always be someone willing to buy your bond for $96, cause in actuality it is worth $100 and after a year it’ll be worth $104.

 

[DontCostYaNuffin]

Supposedly, the difference between the market rate and the interest rate on a bond (reference obligation coupon) determines the value of a bond. You’d think the value of a bond is determined by supply and demand, demand in particular. That’s why I don’t get why an increase in interest rates leads to a fall in bond prices. You’d think that high rates are sign of an increase in demand, which leads to higher prices, in this case bonds becoming more valuable.

 

[DontCostYaNuffin]

I read somewhere that the reference obligation coupon is fixed but that you can sell your bond whenever you want to.

Say you buy a $100 bond for 2 years at an interest coupon rate of 4% and you decide to sell your bond after a year and buy one with an interest coupon rate of 10% You are even willing to sell your old bond for $ 96 because this new investment will yield $96+ $9.6 = $106.50 within a year, whereas your old one only made you $104. There will always be someone willing to buy your bond for $96, cause in actuality it is worth $100 and after a year it’ll be worth $104.

Edit: $105.60, lol

 

[Boba Fett]

Spartan Bail Bonds?

 

[VanHelsing]

Bonds: