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> A collective flight into bonds would further depress interest rates. Falling interest rates produces capital gains on bonds, which attracts still more investo
by sweeneyrod 7y ago
> A collective flight into bonds would further depress interest rates. Falling interest rates produces capital gains on bonds, which attracts still more investors, driving rates further down.
What do you mean by this? That increased demand causes higher prices causes increased demand under the expectation of the trend continuing?
- thefj 7y agoNot OP, but it makes sense. A lot of investors hear about an asset going up and they want to join the party. A lot of the other investors try to predict where the emotional investors will go and buy the asset in anticipation.
- sweeneyrod 7y agoYes, that certainly can happen. But when that kind of speculation has a significant effect it's called a bubble, and is an exception to the usual rule that increased demand causes prices to increase up to a new equilibrium point and no further. Is there any reason to think that a bubble would occur in this particular situation?