bond prices and affect on the markets?

Question

In the last week there has been volatility in the stock markets with people saying that bond yields are to blame.

If I'm not mistaken, yields go up when prices go down because the coupon is bigger in comparison to the price.

Also if I'm not mistaken, prices go down when people are selling things.

So if the price is going down because bonds are being sold, why isn't this good for the market because then this money would flow into the stock market boosting prices?

Thanks...i guess my question is:

What is pushing the prices of bonds down?

Answer 1

Your basic assumption is flawed. If people sell bonds, they do not put the money into stocks. They would be going from a less risky investment to a more risky investment. Most are moving to money markets or gold or CD's. The stock market has been going down because stocks are over-priced.

Answer 2

you are on the right track. until the last sentence.

think of yourself as a CEO. the higher interest rates are, the lower your profit margin will be on any new planned investment, and vice versa. this is especially true in the current climate. because of long term interest rates being so low, historically speaking, and corporate profits have been so high - the private equity boom has kept a bid beneath the stock market. but since the private equity guys need long term interest rates to be low for them to turn around a real stinker of a company for them to make any money. with intrest rates rising, they have to be more selelctive about who they buy, and likewise for individual companies as well, they have to be more discriminating as to which projects they fund in order to keep their firm growing. rising interest rates also affect the cost of many, many institutional traders because they use borrowed money (leverage) to enhance returns.

private equity is kinda like a mutual fund, but instead of buying a piece of the company, they buy the whole thing - with borrowed money - enhancing returns. they like strong companies with dependable cash flows - that way they can use more leverage to fund the buyout further enhancing returns. Buyout of TXU is a good example.

Answer 3

purely in that the employer's potentialities influence the possibility of default yet because of the fact the relationship between return and default is a step function, that's complicated to quantify different than via diversifying the possibility. the possibility of default is likewise expected very coarsely in credit scores of the companies in touch consequently the bonds could categorised via possibility of default and if the changing potentialities of a employer places the bond right into a classification which normally has greater yields to offset the greater effective possibility of default then the marketplace cost of the bond will drop and in addition if super overall performance via the employer effects interior the bond being categorised with bonds with decrease expenses of activity then that's marketplace cost could develop.