Janet Yellen reiterated again that FED would be raising interest rates soon. The bond yields should rise since the price of the bonds will fall with a rise in interest rates. The fact is very simple. New bonds will be issued with higher coupon rates i.e. with higher interest rates so investors will sell their present holdings to acquire new bonds. Remember, most investors generally do not hold bonds until maturity and many bonds are traded like stocks although equities are more liquid compared to bonds. Sale in the bond holdings brings down the prices of the present bonds. However, the escalating risk due to North Korea has made investors vary with more buying of treasuries. This has resulted in a muted effect on the prices of US sovereign bonds.
In an article published in WSJ, India, and Indonesia have attracted a huge inflow in the bond market. Over the year, investors have invested about $20.2 bn and $9.1 bn in bond markets respectively. Major investment has been into sovereign bonds with 10-year bonds as the most liquid. Yields of sovereign 10-year bonds are the barometer of investor confidence in a country’s economic growth and local policies for businesses. This a huge signal of investor confidence for both the countries, however, foreign ownership of Indian bonds still remains low with 4.2% according to facts published by ANZ.
Categories: Finance & Economics