How to measure a Bonds demand and its local currency?
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Thread: How to measure a Bonds demand and its local currency?

  1. #1
    My understanding is that if a demand for a bond is moves up, people convert to local currency to buy the bond. So price of the currency goes.

    But how exactly do we quantify that the demand for a bond is heading up, as a bond return's and bond's price are inversely co-related.

    Does the growth in bond's price signify an increase in a bond's demand

    (or)

    Does the boost at a bond's yield signify a rise in bond's demand?

    If my understanding is wrong, please feel free to correct me...

    Due

  2. #2
    Quote Originally Posted by ;
    quote Correct and this is going to end in the yields going down. This may also increase the value of the currency, since people are buying that currency to buy those bonds. After the world markets are looking for safe skies, example bonds dropped everywhere. The market volatility and loses generated panic, scaring your investors looking for safe places to put their cash. quote No its opposite. Bonds growth in price, is by a low need. The increase in price is to entice more buyers. (or) quote The bonds price...
    COGSX86,

    Thank you for putting in the effort to provide your inputs.

    Can you please assist me draining the confusion:

    You said that need for bonds goes up, yields return.

    Additionally,

    Bonds increase in price, is out of a reduced need.

    If non need triggers Bond Prices to grow, that means Low Demand causes Bond Yields to fall.

    So conversely High Demand cause Bond Yields to grow? Which is in battle with stage.

    Apologize for the noob questions, just trying to wrap my mind around it...

    Thank you

  3. #3
    Quote Originally Posted by ;
    My Understanding is that when a demand for a bond is moves up, people convert to local currency to buy the bond. So price of the currency goes. But how exactly do we quantify that the demand for a bond is heading up, because a bond return's and bond's price are inversely co-related. Does the growth in bond price indie an increase in a bond's need (or) Does the boost at a bond's yield indie a rise in bond's demand? If my understanding is wrong, please feel free to correct me... Thank you
    Bond prices and bond yields are correlated.
    If demand for bond increases, bond yields drops bond prices grow.

    The relationship with currencies however, isn't so straightforward. It can vary with the company cyces. They are positively correlated, othertimes they proceed in opposite directions.
    Government bond yields are good way to guage the market expectation of future interest rate.

  4. #4
    Quote Originally Posted by ;
    in case a need for a bond goes up, people convert to local currency to buy the bond.
    Correct and this is going to result in the yields going down. This may increase the value of the currency, since people would be buying that currency to buy those bonds.

    Once the world markets are looking for safe heavens, example after 2008, bonds dropped everywhere. The market volatility and loses generated panic, scaring your investors searching to put their cash.

    Quote Originally Posted by ;
    Does the increase in bond's price signify an increase in a bond's need
    No its opposite. Bonds increase in price, is from a minimal need. The rise in price is to lure more buyers.

    (or)

    Quote Originally Posted by ;
    Does the Growth at a bond's return signify an increase in bond's requirement?
    The bonds price and bonds return are basically the exact same thing.


    Example if you buy a 100$ bond, that bond will probably cost exactly the exact same no matter what, 100$. Its will alter. The return on the bond is your exemptions obligation, at no extra cost to the purchaser.

    Now as for what banks do, is that they will sell and buy bond yields like currency. The rationale is because bonds maintain their worth, and have less volatility. Banks do this to maintain the value of the business in bonds to secure their vaults. Also that its easy to turn into a bond dealer, your basically offering people cash that is free. But of course then we put into inflation and these. But I know thats not your justifiion for this thread. You'd like to understand how to judge a government bonds need.

    This ties in with the following:

    Monetary policy
    Economic Growth
    Country Tax rates
    Job Growth
    Natural Resources
    Economic Stability
    GDP
    CPI
    etc etc etc

    All These aspects Can Be Quite in-depth topics, each to their own. Bonds are a leading indior for the foreign exchange markets, regrettably your average trader doesn't realize this.

    IF you have not already done so, please check out this thread. https://www.forexforum.co.za/cryptoc...ines-time.html.

    It reveals the empirical evidence linking 3 month bond yields to monetary policy, together with the correlation bonds provide for foreshadowing the forex market.

  5. #5
    Quote Originally Posted by ;
    quote Correct and this is going to end in the yields going down. This will boost the value of the currency, because more people would be buying that currency to buy those bonds. When the world markets are searching for skies, instance after 2008, bonds fell every where. The market volatility and loses created panic, scaring your investors searching to put their money. quote No its reverse. Bonds growth in price, is from a need. The rise in price is to lure buyers. (or) quote The bonds price...
    I will certainly check the thread, one of the reasons why I am receiving the primer on bonds...

  6. #6
    Quote Originally Posted by ;
    quote Bond prices and bond yields are correlated. If demand for bail raises, bond yields drops bond prices increase. The connection with currencies however, is not so straightforward. It may vary with the business cyces. They are correlated, othertimes they move in opposite directions. Government bond yields are great way to guage the market anticipation of future interest rate.
    Thanks Synicz for the answer...

  7. #7
    Quote Originally Posted by ;
    quote COGSX86, Thanks for putting in the effort to provide your inputs. Could you please help me clearing the confusion: You mentioned that need for bonds goes up, yields go down. Bonds growth in price, is from a need. If need triggers Bond Prices to grow, that implies Low demand causes Bond Yields to fall. So conversely Demand cause Bond Yields to grow? Which is in conflict with point. Apologize for the noob questions, just trying to wrap my mind round it... Thanks
    I am at call now so quick replz

    higher demand bond price rises yield goes down

  8. #8
    Quote Originally Posted by ;
    quote I'm at telephone now so speedy replz higher demand bond price climbs return goes down
    Thanks a Lot Michi...

    One follow up question though,

    If yields are large, it should give more profits is not it? Increase in returns isn't used as an indior for high demand of bonds?

    Due

  9. #9
    Quote Originally Posted by ;
    quote Thanks a Lot Michi... One follow up question, however, If yields are large, it should give more profits is not it? Increase in returns is not employed as an indior for high need of bonds? Thanks
    This is due to the structure of bonds. Bonds typically pay out a coupon rate. Rather than a fixed percentage. The coupon rate doesnt alter, the price of bond does.
    So lets say you are buying a bond paying out $10 annually. You paid $1000 for it. The yield afterward is 10/1000 = 0.01 or 1 percent

    Now imagine somebody offers to buy your bond for $1200, do not forget that the coupon rate doesnt change. Thus the yield for this bond is currently 10/1200 = 0.00833 or 0.833%. The price of the bond has improved or the yield has dropped.

    Clearly this is an oversimplified explanation.

    Thus an increase in returns actually demones that there is a reduction in need for the bond.

  10. #10
    Quote Originally Posted by ;
    quote This is due to the arrangement of bonds. Bonds typically cover a voucher rate. Rather than a fixed percentage. The coupon rate doesnt change, the price of bond will. Lets say you're buying a bond paying $ 10 yearly. You paid $1000 for this. The return afterward is 10/1000 = 0.01 or 1% Now envision somebody offers to buy your bond for $1200, remember that the coupon rate doesnt change. Thus the return for this bond is currently 10/1200 = 0.00833 or 0.833%. The price of the bond has improved or the return has dropped. Obviously that is an oversimplified...
    Thank you a lot Synicz for describing with an example...

    simply to confirm my understanding, the below link is the price of US-2 Year T-Note in regards. When we look at monthly candles, then it's currently going down.

    When it goes down, it's safe to presume USD will keep becoming weak?

    https://in.investing.com/rates-bonds/us-2-yr-t-note

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