Bonds Markets and Interest rates ?
Bonds are debt instruments which are basically an ‘IOU’ or a promise from a government entity,municipality, fund or a corporation to repay an agreed upon return for the loan
The issuer of bond, promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due. The bond market is vital to the US economy, it raises capital for major infrastructures. There are several types of bonds.
- US government securities
- Municipal bonds
- Corporate bonds
- Mortgage and asset-backed securities
- Federal agency securities and
- Foreign government bonds.
The bond market trades like the ‘over the counter market’ where sophisticated data banks allow traders to buy and sell securities from investors and institutions.
Any one buying a house,auto, or boat will benefit by following the bond market since interest rates are tied to the movement of bond yields. This correlation between the bond and mortgage markets and your interest rate is very important to understand. News that affects interest rates, change the bond market expectations, and vice a versa.
Interest rates mimic the bond yield , lower the yields, lower the rates. The benchmark 10 year bond is provides a clear picture where the interest rates are headed. Please note only the ‘prime rates’ closely mirror the bond markets,if you have credit problems and other issues,these changes are insignificant to your loan since these rates are not related to bond market changes.