I remember that there was a controversial topic before that was related to the causal relationship between yield rate and bond price. The reason for the controversy was which one is the cause and which is the effect? In fact, I personally think that both may cause and effect each other, depending on the accident that occurred.
Example: First, with the Fed’s interest rate hike cycle, the Fed will control the yield of U.S. bonds by buying bonds from the market or selling bonds back to the market. At this time, the price rise and fall caused by buying and selling bonds is the cause, and the change in bond yield is the result.
Second, taking the recent decline in CPI as an example, the market is optimistic that the Fed will turn to monetary tightening in the near future and then start to cut interest rates. At this time, the market expects the future decline in yields to be the cause, and then running to buy bonds will become the result . I think different environments will create different causes and effects. Bonds are just a tool. The important thing is to judge who is leading whom in the current situation, so as to understand the possible trend direction. In addition, let’s popularize the concept of bond yield. The price of U.S. bonds and the yield of U.S. bonds show a linear relationship (yields rise and bonds fall, please refer to the figure below for 20Y yield V.S. 20Y bond price). In the vernacular, there will be a "fixed" denomination (such as 10,000 U.S. dollars), and a "fixed" income (such as 100 U.S. dollars) will be allocated every year, but bonds are auctioned, and each issue will have a bond price. The price of the bond It is "changing". Yield is "fixed" interest / "variable" auction price.
Therefore, if there is a strong subscription for treasury bonds, the auction price will rise and the yield rate will fall. On the contrary, if no one wants to buy bonds, the auction price will be low and the yield rate will rise again. As for the yield rate and the stock market, there is no absolute positive or negative correlation. There may be a delay between them, but don't think that the stock market will rise when the debt rises.
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