If Bonds confuse you, read this (Bonds 101):
Generally, bond prices are inversely related to bond yields, however, the relationship is more complex when there is an inverted yield curve (where the yield on short-term bonds is higher than the yield on long-term bonds).
Bond prices can be higher or lower than their face value, depending on the demand for the bond:
1) When interest rates rise, bond prices fall. This is because investors can get a higher yield on new bonds, so they are willing to pay less for existing bonds.
2) When interest rates fall, bond prices rise. This is because investors can get a lower yield on new bonds, so they are willing to pay more for existing bonds.
3) HOWEVER, when there is an inverted yield curve, the relationship between bond yields and bond prices is more complex. This is because investors are not only looking at interest rates but also at the outlook for the economy. When investors are expecting a recession, they will be willing to pay more for bonds, even if interest rates are rising.
• For short-term bonds, bond yields & bond prices follow their typical inverse relationship
• For long-term bonds, the relationship is more complex because other factors like future economic expectations can influence demand, and therefore bond prices
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