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The calculation of bond prices due to the change in time to maturity can also be easily figured based on some relatively simple math, giving investors a clear idea of a bond’s expected price.
How the Trump tariffs could affect inflation and bonds. ... Floating-rate bonds adjust the interest rate based on factors such as inflation, offering some protection to investors, though they’re ...
Bond prices and interest rates are closely related and can both be used to forecast economic activity, so investors should at least be aware of the basics: how interest rates affect bond prices ...
surprises in investor confidence due to changes in default premium in corporate bonds; surprise shifts in the yield curve. As a practical matter, indices or spot or futures market prices may be used in place of macro-economic factors, which are reported at low frequency (e.g. monthly) and often with significant estimation errors.
[46] It returns the required (expected) return of a financial asset as a linear function of various macro-economic factors, and assumes that arbitrage should bring incorrectly priced assets back into line. [note 12] The linear factor model structure of the APT is used as the basis for many of the commercial risk systems employed by asset managers.
However, technical factors, such as a flight to quality or global economic or currency situations, may cause an increase in demand for bonds on the long end of the yield curve, causing long-term rates to fall. Falling long-term rates in the presence of rising short-term rates is known as "Greenspan's Conundrum".
Monetary policy — specifically, actions by the Fed to tame inflation or stimulate economic growth — has a direct influence on interest rates and, therefore, bond prices. When interest rates ...
The net return on bonds is the sum of the interest payments and the capital gains (or losses) from their varying market value. A rise in interest rates causes aftermarket bond prices to fall, and that implies a capital loss from holding bonds. Accordingly, the return on bonds can be negative. Thus, people may hold money to avoid the loss from ...