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 …
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 …
In times of extreme volatility, investors are looking to put their money in “safe havens” to protect their capital. The term safe haven in investing means an asset class where it has a higher chance of maintaining its value compared to riskier assets. In this article we will list some of the common safe havens. Government Bonds Yields on Government Bonds have recently fallen. This means that the price of bonds has gone up reflecting the increased demand. Investors are …
Successful share market investors will also keep an eye on bond yields. This is because it is an indication on how investors perceive the economy. Yields on US treasury bonds have recently fallen to historical lows, so what does this say about how investors perceive the state of the economy? Inverse relationship Bond prices and bond yields move in opposite directions. When investors flock to take positions in bonds, this causes bond prices to rise as demand increases. However, it …
The bond market is watched closely by professional traders in the equity markets. The “smart money” often uses 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. For example, high interest rates can be a negative for share markets, as we wrote about in our blog “Why rising bond yields is bad news for the stock market”. Predicting the Economy …