2) Why did investors selling American bonds cause bond yields to rise?
Investors selling bonds caused bond yields to rise because ____________.
Wrong! - How does selling bonds influence their price? Are bond prices and bond yields related? Are bond yields set by Federal Reserve decision or are they determined by supply and demand in the bond market?
Correct! - A bond is a promise to make specified (fixed) payments on specified dates.
The bond yield is the rate of return on the bond, which equals the fixed interest payment received divided by the bond price. As investors sell bonds, the supply of bonds increases. The price of the bond falls and the bond yield rises.
When the U.S. interest rate differential increases, people can make more interest on U.S. assets compared with foreign assets. People buy U.S. assets and others who already hold U.S. assets keep them. The demand for U.S. dollars increases and the supply of U.S. dollars decreases. The U.S. dollar appreciates.
The U.S. interest rate differential and U.S. dollar normally move in tandem, but the relationship broke down for a stretch in April when tariff announcements prompted investors to shed American bonds, sending bond yields soaring and the dollar plummeting. —economist.com