BOND PRICES THE BOND SEE-SAW One of the most important but perplexing relationships in finance is that interest rates and bond prices move in opposite directions. Why do bonds work this way? A bond is a loan to another party (usually a corporation or government) which, if all goes well, will pay you back when the bond matures.

Jul 20, 2013 · If the bond’s interest rate isn’t fixed, and instead readjusts as market rates change, the seesaw analogy doesn’t hold. And the prices of different kinds of bonds shift differently. But the...

Sep 18, 2023 · The interest rate, or yield, of a bond is a key factor in determining its appeal to investors. In the US, these interest rates are predominantly influenced by the Federal Reserve. This is where the seesaw comes in.

Oct 24, 2023 · Picture a good-old-fashioned playground see-saw. Interest rates are on the one end, your bond investments are on the other. Rapidly rising inflation caused interest rates to rise quickly during the past few years, consequentially pushing existing bond …

The bond see-saw Yield is a very important concept on the SIE exam, and the bond see-saw helps visualize the relationship between bond prices, interest rate changes, and yields. We’ve looked at the see-saw through the lens of a discount, premium, and par bond.

Jul 22, 2013 · The U.S. has experienced two secular interest-rate cycles since 1948. From 1948 to 1981, a 31-year period, bond prices dropped lower as interest rates rose. Since 1982, interest rates declined, in a 34 year cycle that benefited bond values. A new secular trend is starting, and advisors need to explain that to clients.

Bond prices and interest rates have an inverse relationship: When interest rates rise, bond prices fall and vice versa—just like a see saw. Higher interest rates allow bond investors to collect more interest on new bond purchases, but the principal value of their existing bonds will drop in value.

Teeter Totter Of Bonds . We’ve probably all been on a teeter totter, also called a seesaw. When one side goes up, the other side goes down. Unfortunately the same concept often applies to taxable corporate bonds, tax-exempt municipal bonds, preferred stocks and other fixed income securities because they are interest rate sensitive.

The price-yield seesaw and interest rates. Just as a bond's price can fluctuate, so can its yield--its overall percentage rate of return on your investment at any given time. A typical bond's coupon rate--the annual interest rate it pays--is fixed.

Apr 12, 2023 · Amid growing signs of receding inflation, the inverse stock-bond correlation that defined the balanced portfolio is set to make a comeback. But given the state of rates today, advisors looking to adopt the 60-40 formula once more must also shed a critical bias built over more than a decade.