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Guest Charlie The Tramp

Uk And European Bond Markets Slumps

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Guest Charlie The Tramp
Bond markets in the UK and Europe slumped today on concern that the Bank of England and the European Central Bank will continue to raise interest rates.

The yield on the British ten-year Government bond reached 5.47pc, close to the highest in seven years, while the yield on Germany's ten-year bond jumped tp 4.63pc, the highest in almost five years.

Looking to the future with Global inflation taking off I can see rates hitting 7% in 2008.

UK and European bond markets slumps

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Guest Cletus VanDamme
Looking to the future with Global inflation taking off I can see rates hitting 7% in 2008.

UK and European bond markets slumps

Sorry, I know I'm a bit thick, but if bond yields are at a 7-year high, that's good, isn't it? So why is the bond market slumping?

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Sorry, I know I'm a bit thick, but if bond yields are at a 7-year high, that's good, isn't it? So why is the bond market slumping?

The easiest way to understand it is that the yield is a fixed amount of money. Therefore it goes up as a percentage when the price goes down, because of fewer people wanting to buy them. Bonds are governments borrowing money, so the fewer people want to lend money to the government, the less they can get for the promise to pay a certain amount in the future, and the higher the effective interest rate (or yield).

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Sorry, I know I'm a bit thick, but if bond yields are at a 7-year high, that's good, isn't it? So why is the bond market slumping?

If you bought bonds paying a certain yield, then they issue new ones with a higher yield for the same price, the value of yours drop.

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Sorry, I know I'm a bit thick, but if bond yields are at a 7-year high, that's good, isn't it? So why is the bond market slumping?

See JDC's post explaining that a fall in the PRICE of bonds is the same as a rise in YIELD.

My point is:

Yes it's good for someone who wants to buy a bond today (and thus become a lender).

But it's bad for borrowers!

The short term interest rate is set by the BoE. But longer term fixed rates are dependant on investors buying bonds.

And lenders' yield = borrowers' interest rate. If bond prices are falling, fixed rates will become more expensive.

Edit: Typo

Edited by Selling up

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The sell-off in the US escalated at precisely 7pm when the US bond market tanked. We are seeing somewhat of a stabilisation of prices this morning and the DAX and the FTSE are trying to stage somewhat of a comeback. I think anything can happen today. The indices had a one-day "dead-cat bounce" and we are seeing a retest of the lows. If we break lower, I wonder if investors are going to sit like rabbits in a headlight or will they capitulate and sell out. I suspect the former, which is why the uptrend is still intact. We have a fair amount of bargain hunting from traders hoping that indices will turn around.

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The sell-off in the US escalated at precisely 7pm when the US bond market tanked. We are seeing somewhat of a stabilisation of prices this morning and the DAX and the FTSE are trying to stage somewhat of a comeback. I think anything can happen today. The indices had a one-day "dead-cat bounce" and we are seeing a retest of the lows. If we break lower, I wonder if investors are going to sit like rabbits in a headlight or will they capitulate and sell out. I suspect the former, which is why the uptrend is still intact. We have a fair amount of bargain hunting from traders hoping that indices will turn around.

I shall be sitting in the headlights, my timeframe warrents it.

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Guest Cletus VanDamme
The easiest way to understand it is that the yield is a fixed amount of money. Therefore it goes up as a percentage when the price goes down, because of fewer people wanting to buy them. Bonds are governments borrowing money, so the fewer people want to lend money to the government, the less they can get for the promise to pay a certain amount in the future, and the higher the effective interest rate (or yield).

Aha, I see now. Many thanks, you learn something every day on this forum (in between the tin-hat stuff!)

Cheers

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Aha, I see now. Many thanks, you learn something every day on this forum (in between the tin-hat stuff!)

Cheers

Yes, but it is far more important to know that the NWO are coming to eat your babies!!

:P

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Sorry, I know I'm a bit thick, but if bond yields are at a 7-year high, that's good, isn't it? So why is the bond market slumping?

That sounds about right, a BTLer who doesn't understand the concept of yield! :lol:

God bless you.

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