US President Bill Clinton's election campaign manager James Carville says "In the past, I thought that if there is reincarnation were to come back as President, Pope or a baseball player. But now I want to go back as a bond market."
The international Bond Markets which companies and governments used it for find source,It is not as famous and understandable as the stock market but it is more important and effective than some angles.Bond markets, which determine whether an economy can be borrowed and borrowed at low cost, help determine the course of wars, revolutions and political struggles.It caused important results for every areas of life.Even in peace times,the ability of money creation of government is important for citizens:The higher the interest rate to be paid,it will be higher the borrowing cost of the economy in all other areas.So it is your loss to ignore the Bond Market.
State bond prices shows reliability of government,how easy it is to create money and how policies are perceived.If a government can't use bond markets,it does about to collapse.
Basically,the bond market is a bill of debt.It affirms,a fixed amount of money(lump sum) and also will be paid interest in certain periods(generally annually) to owner in future.For instance,typical state of 100,000 US dollars could be termed from 2 years to 50 years and nominally, it creates %4-5 interest yield.If the bonds started to circulation,it could be processed such as New York, London and Tokyo, the international bond markets in the world's financial centers.
The important thing is rate The source of the real power of the bond market, the fair rate that the market determines for a bond, can be quite different from that on the bond.If the investors believe that the government's a)to go bankrupt or b)to raise inflation (which is like bankruptcy because inflation leads to decrease in value),they will sell the related bonds of government.This situation has a double effect, which reduces the price of the bond and raises the interest rate it will bring.
Economically,this situation is reasonable:The more risk an asset is, the fewer investors will buy it and The reward(the interest rate) that they have to take to keep it in hand is so high.
It will bring $ 450 a year to owner in his/her lifetime(10 years,20 years or more).From selling price to whole who is buying bonds, it does mean %4,5 interest rate.Ok then, If the investors lost themselves trust to the American Governments and if the investors start to selling bonds? The price will fall to $9.000 .With this price, $450 interest yields,it will come to %5 for new investors.
The market value of the bonds is very important since it sets the interest rates that governments will need to offer in order to sell the bonds that they'll print in the future.Every week, in order to find thousands of customers, the interest rates (coupon interest) written on it must be adjusted to the market value of existing bonds.As the required rate increases, borrowing becomes more difficult and the borrower has to go back.World governments regularly issue new bonds as they have to borrow to keep their budget balanced.In USA,most known state bonds are,treasury notes,midterm treasury bond,shortterm treasury note.In UK,it called as Gilt-Edged Securities because it is believed that the state is a credible creditor.
The origin of bonds At the first time bonds emerged in medieval age Italy.The city-states which is fight with each others,they force to rich citizens to loan to state with a regular interest payment provision.Even if the modern investors do not have to buy bonds,the state mostly in UK and US, become indebted to money to its citizens through pension funds.Pension funds,must transfer a certain amount of most of the cash to government debt because it does the least risky investment choice existing.Until Napoleon era,market was not effective in real term.First,British government was printing bonds named as tontine and consol.At the 20th century first half Nathan Rothschild,became the richest person and maybe became most powerful financier in the World,through his earnings at Europe bond markets.The fact that Rothschild's to give approval an owed country or not, emerged very serious consequences.Most of historian think,the consequence of French defeat at Napoleon wars were caused couldn't pay their debts and could not find enough money for expedition more than strategic military decisions.
Yield Curve What best reflects the importance of the bond market, perhaps, is that movements in bond interest can give excellent clues about the economic future of an country. Basically yield curve, it measures,state bond diversity of interest in the time.While other variables are in fixed,the interest rates of near-term treasuries should be less than those of the years after the end of the period.It signals to economy will grow and general price level will increase in the future.But, yield curve often reverses.The interest rates of the maturity which will be over soon can be higher than long-term.
This is a solid picture of the economy being seen close to the recession because interest rates and inflation (This two phenomenon about collapse) indicate that they will fall in future years.It is also an example that everyone's economic fate is bound to the bond market inevitably.
Essence of the Idea
Bonds are the main means by which governments finance themselves.
The international Bond Markets which companies and governments used it for find source,It is not as famous and understandable as the stock market but it is more important and effective than some angles.Bond markets, which determine whether an economy can be borrowed and borrowed at low cost, help determine the course of wars, revolutions and political struggles.It caused important results for every areas of life.Even in peace times,the ability of money creation of government is important for citizens:The higher the interest rate to be paid,it will be higher the borrowing cost of the economy in all other areas.So it is your loss to ignore the Bond Market.
State bond prices shows reliability of government,how easy it is to create money and how policies are perceived.If a government can't use bond markets,it does about to collapse.
Basically,the bond market is a bill of debt.It affirms,a fixed amount of money(lump sum) and also will be paid interest in certain periods(generally annually) to owner in future.For instance,typical state of 100,000 US dollars could be termed from 2 years to 50 years and nominally, it creates %4-5 interest yield.If the bonds started to circulation,it could be processed such as New York, London and Tokyo, the international bond markets in the world's financial centers.
The important thing is rate The source of the real power of the bond market, the fair rate that the market determines for a bond, can be quite different from that on the bond.If the investors believe that the government's a)to go bankrupt or b)to raise inflation (which is like bankruptcy because inflation leads to decrease in value),they will sell the related bonds of government.This situation has a double effect, which reduces the price of the bond and raises the interest rate it will bring.
Economically,this situation is reasonable:The more risk an asset is, the fewer investors will buy it and The reward(the interest rate) that they have to take to keep it in hand is so high.
It will bring $ 450 a year to owner in his/her lifetime(10 years,20 years or more).From selling price to whole who is buying bonds, it does mean %4,5 interest rate.Ok then, If the investors lost themselves trust to the American Governments and if the investors start to selling bonds? The price will fall to $9.000 .With this price, $450 interest yields,it will come to %5 for new investors.
The market value of the bonds is very important since it sets the interest rates that governments will need to offer in order to sell the bonds that they'll print in the future.Every week, in order to find thousands of customers, the interest rates (coupon interest) written on it must be adjusted to the market value of existing bonds.As the required rate increases, borrowing becomes more difficult and the borrower has to go back.World governments regularly issue new bonds as they have to borrow to keep their budget balanced.In USA,most known state bonds are,treasury notes,midterm treasury bond,shortterm treasury note.In UK,it called as Gilt-Edged Securities because it is believed that the state is a credible creditor.
From AAA to C Credit Grades
Bonds -which are printed by companies or states- are among the safest investments.When a company collapsed, bonds owners ,their invests come to top of the receivable; stock owners maybe have to wait until whole money to be paid.But inability of non-payment of debts probability,important issue for investors.Because of that,a complex device has been built to guide the credibility of a particular bond. The establishments which give credit grades,for instance Standard&Poors,Moody's or Fitch,they gradate of state and company bonds by according to the probability of bankruptcy.This grades,the best one grade goes from AAA to C. BAA and higher bonds called as "in investment grade" , the ones which are in lower called as "junk bonds".The interest rates of junk bonds are generally higher to cover the magnitude of bankruptcy risk.
The origin of bonds At the first time bonds emerged in medieval age Italy.The city-states which is fight with each others,they force to rich citizens to loan to state with a regular interest payment provision.Even if the modern investors do not have to buy bonds,the state mostly in UK and US, become indebted to money to its citizens through pension funds.Pension funds,must transfer a certain amount of most of the cash to government debt because it does the least risky investment choice existing.Until Napoleon era,market was not effective in real term.First,British government was printing bonds named as tontine and consol.At the 20th century first half Nathan Rothschild,became the richest person and maybe became most powerful financier in the World,through his earnings at Europe bond markets.The fact that Rothschild's to give approval an owed country or not, emerged very serious consequences.Most of historian think,the consequence of French defeat at Napoleon wars were caused couldn't pay their debts and could not find enough money for expedition more than strategic military decisions.
Yield Curve What best reflects the importance of the bond market, perhaps, is that movements in bond interest can give excellent clues about the economic future of an country. Basically yield curve, it measures,state bond diversity of interest in the time.While other variables are in fixed,the interest rates of near-term treasuries should be less than those of the years after the end of the period.It signals to economy will grow and general price level will increase in the future.But, yield curve often reverses.The interest rates of the maturity which will be over soon can be higher than long-term.
This is a solid picture of the economy being seen close to the recession because interest rates and inflation (This two phenomenon about collapse) indicate that they will fall in future years.It is also an example that everyone's economic fate is bound to the bond market inevitably.
Essence of the Idea
Bonds are the main means by which governments finance themselves.
