"The Bond Paradox: Why Longer Term Bonds Yield Less than Short Term Bonds?"
Yield= Return of Investment on Bond
[THREAD🧵]👇
1) During this current period of uncertainty, investors may be willing to accept lower yields on safer longer-term bonds.
#Powell #TreasuryBills #Fed
Yield= Return of Investment on Bond
[THREAD🧵]👇
1) During this current period of uncertainty, investors may be willing to accept lower yields on safer longer-term bonds.
#Powell #TreasuryBills #Fed
This can increase demand for longer-term bonds.
When the demand for a bond increases, its price goes up, leading to investors buying bonds at a premium and ultimately resulting in a decrease in yield or return.
When the demand for a bond increases, its price goes up, leading to investors buying bonds at a premium and ultimately resulting in a decrease in yield or return.
2) Central banks may increase short-term interest rates to control inflation or cool down an overheating economy.
Investors may opt for fixed deposits with banks as they offer a more attractive rate of return, causing a decline in demand for existing shorter-term bonds.
Investors may opt for fixed deposits with banks as they offer a more attractive rate of return, causing a decline in demand for existing shorter-term bonds.
As a result, the price of these bonds decreases, making them available for purchase at a discount, which leads to an increase in the yield or return of shorter-term bonds.
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