Developed country bond markets are behaving oddly. Government bond prices are falling because holders are leaning towards offloading the debt instruments, and new buyers are more circumspect.
Given that government bonds promise to make payments that are a fixed proportion of the face value of the bond, the yields on these bonds are the inverse of their prices. When prices rise, the yield falls (since the coupon payment isa fixed sum), and vice versa. When yields rise, the government is forced to offer higher rates on the new bonds it sells. Thus, credit is getting more expensive for the government.
According to the “markets”, or their spokespersons, large debt accumulation and “excess” bond issues explain this trend. With the demand for bonds not matching supply, bonds have at different points in time recently traded at values below par. In the financial tsar Jamie Dimon’s view, the US bond market is likely to “crack”…
