bonds

How do bond yields perform in high inflation?

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In a high inflation environment, bond yields typically rise. Here’s how it works: Inverse Relationship Bond prices and yields have an inverse relationship. When inflation is high, investors demand higher yields to compensate for the decreased purchasing power of future interest payments. Central Bank Response Central banks, often raise interest rates to combat inflation. Higher interest rates lead to increased yields on newly issued bonds, which can also push down the prices of existing bonds. Impact on Different Bonds Long-term …

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Bonds and the share market

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The bond market is watched closely by professional traders in the equity markets. Traders often use the bond market as a predictor of what will happen in the share market. One reason is because it can give indications as to where the economy is going. Predicting the Economy Short term rates are set by central banks. They evaluate different economic indicators before setting this rate. Long term interest rates are determined by the market.  The bond market will determine whether …

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Why rising interest rates means lower bond prices

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Bond yields are monitored by equity investors as it can impact the share market and reflect the direction of the economy. However, higher interest rates mean lower bond prices for bond holders. It is a confusing concept to understand so here is a simplified explanation. How bonds work A bond is a fixed income product where an investor lends money to a corporate or government organisation over a period of time. These firms issue bonds to raise money to use …

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Bond Basics

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Bond yields are closely followed by share market investors as they have an impact on interest rate movements. In this article we discuss what a bond is and the difference between a bond price and bond yield. Definition A bond is essentially a loan. These products can be issued by a government or a corporation. When governments or companies want to raise money, they can do so by issuing bonds. When an investor buys a bond, they are lending money …

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Bonds Simplified

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Companies can raise capital through a debt or equity raising. In the stock market we buy shares which are essentially equity in a company. Shareholders own a small portion of the company through their stock holdings. Equity investors hope to make a capital gain when they sell at a higher price than when they brought it. They may also receive dividend income from holding these shares. Bonds are debt instruments and are structured differently. In this article we simplify how …

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