30–Year Japanese Government Bonds Yield at Record High

Answer the following questions to check your understanding of the story.

1) What is a bond yield?

A bond yield is ____________________.

a) the nominal interest rate earned by the buyer of the bond minus the inflation rate

b) the value of the coupons that the buyer of the bond receives

c) the fixed interest payment received by the buyer of the bond divided by the face value of the bond

d) the fixed interest payment received by the buyer of the bond divided by the bond’s market price

2) What determines the government bond yield?

a) It is decided by the central bank when it buys and sells government bonds in the open market.

b) It is determined by the supply of and the demand for government bonds.

c) It is decided by chartered banks when they buy government bonds from the central bank.

d) It is decided by the government when the bond is issued.

3) Why might the Prime Minister’s resignation make the government bond yield rise?

a) Investors think the new government will implement tighter fiscal policy.

b) Investors expect looser fiscal policy and an increase in the issuance of government bonds.

c) Investors expect the Bank of Japan to lower interest rates.

d) Japanese investors will sell their foreign assets and buy more Japanese government bonds.

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