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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: kimberley who wrote (14544)	8/21/2013 11:20:07 PM
From: ajtj99	Read Replies (2) \| Respond to of 33421

kimberly, here is something from wikipedia that explains the value of bonds: The market price of a bond is the present value of all expected future interest and principal payments of the bond discounted at the bond's redemption yield, or rate of return. That relationship is the definition of the redemption yield on the bond, which is likely to be close to the current market interest rate for other bonds with similar characteristics. (Otherwise there would be arbitrage opportunities.) The yield and price of a bond are inversely related so that when market interest rates rise, bond prices fall and vice versa. In other words, the yields rise (TNX going up in yield), when the price of the bond falls, reflecting the new, higher effective interest rate. For example, if the price of a 10-year bond is $78.00 per $100 in face value, a drop in price to $77.00 raises the yield, but incurs mark to market losses on a holder who bought at $78.00. Big changes in yield like we've had are likely to cause big losses throughout the investment world.