4 ms·
> So no, when rates go up to x+5 you will never be able to find bonds that pay x+5. What? If the current rate is x, this means that this is the rate a bond bei
by lottin 5y ago
> So no, when rates go up to x+5 you will never be able to find bonds that pay x+5.
What? If the current rate is x, this means that this is the rate a bond being issued right now is paying. If the rate goes up to whatever, it means that bonds being issued right now are paying whatever.
- bogomipz 5y agoNo, there is an inverse relationship between between interest rates and bond prices. This is an axiom in the bond market. See: https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/ https://www.investopedia.com/ask/answers/why-interest-rates-...
- lottin 5y agoYes, I know that. We are talking about rates.
- bogomipz 5y agoRates on bonds are meaningless without considering yield.
- fshbbdssbbgdd 5y agoRate and yield are the same thing. Whenever I’m paying a rate, somebody else is earning a yield. Whenever I’m earning a yield, someone else is paying a rate.
- bogomipz 5y agoThey are related but they are certainly not the same thing.
- lottin 5y agoYield is a normalised rate of interest, so that bonds of different characteristics can be compared. When people say a bond pays certain interest rate, they mean the normalised rate, i.e. the yield, otherwise they would make clear they're talking about the "nominal rate", which is different. Therefore in most contexts, rate and yield are the same thing. Anyway, the thing is if the spot rate is x% you will certainly be able to find bonds in the market that pay x% interest (=yield), regardless of the fact that a bond's yield and price are negatively correlated (an irrelevant fact, for the purposes of this discussion).