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> That increases demand for those assets, which drives down their price. I'm not an economist but this seems wrong
by cloakandswagger 8y ago
> That increases demand for those assets, which drives down their price.
I'm not an economist but this seems wrong
- bunderbunder 8y agoHaha, gotcha. edited.
- vasilipupkin 8y agoyes, OP meant drives up the price and drives down yields
- halotrope 8y agoActually it does not drive down the price but the yield. When the price goes up the fixed payment is a lower fraction of the price of the bond. Hence the return goes down. https://www.investopedia.com/terms/b/bond-yield.asp https://www.investopedia.com/terms/b/bond-yield.asp
- cbdumas 8y agoHe made it most of the way there. Increasing demand drives UP prices, which drives DOWN yield.
- nwah1 8y agoThat commenter should've said the yield is driven down. The US government wants to borrow at the cheapest rate of interest. If more people want to lend to them, they have more options and can pick the cheapest option.
- User23 8y ago> The US government wants to borrow at the cheapest rate of interest This is categorically not true. If it were then Congress would pass legislation ordering the Fed to buy securities from the Treasury at whatever rate it liked (or abolish the Fed altogether and just directly spend money into existence). Congress in fact wants to provide savings vehicles, it's not actually necessary for Congress to borrow to fund the federal government. Sure it's necessary under current law but Congress by definition can change that law. That it chooses not to is an expression of a preference.
- helen___keller 8y agoDrives down their yield would be more correct, which is to say the asset becomes less profitable.
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- skiierskyer 8y agoThis was corrected above, but for those who are interested: For bonds, yield and price are inversely related. Buying a bond means you are lending money now, in return for more money later. The amount you get later is made up of the price you pay now plus the interest, ie the yield. So if the yield goes up, the price goes down. (You don't have to pay as much for a bond when the yield goes up).
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