2021-01-12 10:01:56 作者： 所属分类：新闻中心 阅读：0 评论：0

If the market believes that the FOMC has set the fed funds rate too high, the opposite happens, and long-term interest rates decrease relative to short-term interest rates – the yield curve flattens. A humped yield curve is a relatively rare type of yield curve that results when the interest rates on medium-term fixed income securities are higher than the rates of both long and short-term instruments. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Though our focus is on how interest rates affect bond pricing (otherwise known as interest rate risk), a bond investor must also be aware of credit risk. Duration indicates the years it takes to receive a bond's true cost, weighing in the present value of all future coupon and principal payments. The degree to which a bond’s price will change given any shift in interest rates is calculated by assessing the present value of the bond… Equally, if new bonds are issued with a lower interest rate than bonds currently on the market, the price of existing bonds will increase in line with demand. You can purchase bonds via online stock brokers, as our recommended ones to use are: There are six parts to a bond that investors must consider: While bonds are a key part of a government's budget and how companies raise cash, people don't realize that a bond's price can change, and it can trade at a premium or a discount to its original face value. In the secondary market, the prices of bonds move freely with supply and demand. A hypothetical example: The ABC Company offers a new issue of bonds carrying a 7% coupon on a $1,000 face value and a 10-year maturity. The key to understanding how a change in interest rates will affect a certain bond's price and yield is to recognize where on the yield curve that bond lies (the short end or the long end), and to understand the dynamics between short- and long-term interest rates. While bonds have historically been less volatile than stocks over the long term, they are not without risk. Changes in short-term versus long-term interest rates can affect various bonds in different ways, which we'll discuss below. Inflation Expectations Determine the Investor's Yield Requirements, Short-Term, Long-Term Interest Rates, and Inflation Expectations, The Timing of a Bond's Cash Flows and Interest Rates, Treasury Inflation-Protected Securities (TIPS), Federal Reserve's Federal Open Market Committee, The timing of a bond's cash flows is important. This should be intuitive if you think about a present value calculation – when you change the discount rate used on a stream of future cash flows, the longer until cash flow is received, the more its present value is affected. Also, the relationship between interest rates, inflation, and bond prices is complex, and can be affected by factors other than the ones outlined here. A bond's YTM is simply the discount rate that can be used to make the present value of all of a bond's cash flows equal to its price. Skip to content. In this case, if you want to sell your 3% bond, you need to sell your bond for a lower price, so the new buyer will still receive the 4% that new bonds offer. Equally, if new bonds are issued with a lower interest rate than bonds currently on the market, the price of existing bonds will increase in line with demand. Interest rate cycles tend to occur over months and even years. A bond's yield is the discount rate that links the bond's cash flows to its current dollar price. Credit risk, meanwhile, is the risk that the issuer of a bond will not make scheduled interest or principal payments. InvestorJunkie.com© Copyright 2021, All Rights Reserved | Investor Junkie is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Supply and demand can also affect bond prices and yield. If the bond market believes that the FOMC has set the fed funds rate too low, expectations of future inflation increase, which means long-term interest rates increase relative to short-term interest rates – the yield curve steepens. These include white papers, government data, original reporting, and interviews with industry experts. If you’re paid semiannually, or every six … Save my name, email, and website in this browser for the next time I comment. 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