How is the interest rate (Fed Funds Rate) related to bond market?

Question

How is the interest rate (Fed Funds Rate) related to bond market?

Answer 1

References to the "bond market" are often used to indicate changes in interest rates or the shape of the yield curve. Other names for the bond market are the credit market and the debt market.

Since a bond is essentially a loan of money (principle) for a specified length of time (term), it pays a fixed interest rate per month (yield or coupon rate).

How yields compare between financial instruments tends to depend mainly on the credit worthiness of the lender, and the maturity of the instrument. The least risky instruments, such as government bonds, virtually always yield less than more risky corporate bonds. The relationship between yields and the maturity of instruments of similar credit worthiness, is described by the yield curve. Long dated instruments typically have a higher yield than short dated instruments.

In bond markets, US Treasury bond yields are the benchmark debt instruments because they are backed by the US Government and the risk of default is almost nil. All the other debt instruments' yields are then linked to their default risk.

Inflation is linked to the yield in the sense that fears of high inflation in the future would mean that investors would ask for high yield today.

Answer 2

fed funds rate is a ballpark of the "risk free" rate. All bonds have some correlation to the "risk-free" rate. Hence mostly is a positive correlation between fed funds rate and bond yields.

Answer 3

It is Inverse Relationship
when the Interest rate rises, the bond market going down, and vice versa

Answer 4

complex factor. search in the search engines. just that might help!