Why do corporate bonds prices change even when Fed interest rates remain unchanged?

Answer 1

Supply and demand is right, but there are many reasons that affect both supply and demand.

If information comes out that changes the perceived risk for a corporate bond then the price (and yield) will change. If you heard that a company's best selling product now caused cancer the prospect for that company just changed radically and their ability to repay their loan probably changed. This would be reflected in the price of the bond and then the yield of that bond.

If a company issues a huge amount of new debt then that debt or bond is in greater supply and it will drive the price down. The major credit rating agencies are supposed to monitor these things and base their ratings on the companies ability to generate enough money to pay their creditors. Sometimes events happen faster than the credit agencies can respond. The events with some of these sub-prime lenders is a topical example.

Answer 2

Make sure you don't confuse the "Fed" (Federal Reserve System), which is the government's central banking agency responsible for monitoring and managing the money supply here in the U.S., with corporations and corporate bonds. Corporations, municipalities, counties, and a variety of other state and local government agencies can sell bonds to the public at whatever they believe the market will bear. Corporations that are not publicly held and thus do not sell stock to raise capital often sell bonds as a means to raise money. Depending on the credit rating and the type of business of the corporation, the bond may have a very high or very low interest rate. For example, you would probably want a very high interest rate to invest in a company that makes anvils for blacksmiths. But, you may be willing to accept a lower interest rate from a company that makes exclusive chips for the I-Phone.
In addition, you will see the U.S. Treasury notes, which are considered very lowest risk, trade at rates that are different from the posted "Fed" rate. Treasury notes move up and down with the market depending on how much money is flowing into (or out of) the market at any given time. As more money flows into Treasuries (and typically out of the stock market), the Treasury rate moves down. As money moves out of Treasuries, the rate moves back up in an attempt to attract money back in.
A brief word about the Fed. The Fed's job is to tell the banks how much 'cash' money they must keep on hand at all times, thus controlling the money supply. If they believe that the economy is moving in a direction that they like, they allow the banks to lend more money and reserve less in cash. If they don't like the direction of the economy, they tell they banks to build their reserve of cash (and they must do it immediately). Banks, of course, can't build a cash reserve instantly, so the Federal Reserve (Fed) sets a rate at which the banks can borrow the money from the Fed until they can build their own reserve to suitable levels. So, although everyone is focusing on the Fed as a benchmark, the Fed has little to do with bond rates.
Hope that helps a little.

Answer 3

The assumption would be that the long term bond would be more valuable because it has more years of the higher interest rate. i.e. If a 25 year bond is 10% coupon priced at 100 and interest rates are 10% Now interest rates go down to 5% In theory your bond and the short bonds should go to 200 But you can see that you have secured 10% for the next 25 years against the current rate of 5% Of course rates could shoot back to 10% the next day but unlikely. It wouldn't be the case if rates looked historically low. If rates were 2% you wouldn't want to lock in with a 25 year bond. I always remember buying an undated PIB (Coventry BB) with a 10.5% coupon at about £101% about 10 years ago. It is still paying 10.5% and its price is now about £180%

Answer 4

supply and demand