This refers to a historical investment pattern known as the "negative correlation" between stocks and bonds.

When the stock market experiences significant downturns (like during recessions or market crashes), government bonds have often increased in value. Why?

1. "Flight to safety" - in economic uncertainty, investors sell riskier assets (stocks) and buy safer ones (government bonds), driving bond prices up
2. Interest rate movements - economic troubles often lead central banks to cut interest rates, which increases the value of existing bonds that offer higher rates
3. Different economic drivers - stocks generally perform well during economic growth while bonds can perform better during slowdowns

This negative correlation is why many financial advisors recommend a mixed portfolio of stocks and bonds. It's worth noting that this relationship isn't guaranteed.

Would you like me to elaborate?

I'll explain how bonds work in simple terms.

What Is a Bond?

A bond is basically an IOU. When you buy a bond, you're lending money to someone (usually a government or company) who promises to pay you back with interest.

Key Parts of a Bond

1. Principal: The amount you lend (say $1,000)
2. Interest Rate: How much extra they'll pay you (say 3%)
3. Maturity Date: When they'll pay back your original money (could be 5, 10, or 30 years)

How Bond Prices Work (This Is Important)

Here's the tricky part that confuses many people:

• Bond prices and interest rates move in opposite directions
• When interest rates go up, bond prices go down
• When interest rates go down, bond prices go up

Why This Happens

Imagine you buy a $1,000 bond paying 3% interest. Later, new bonds start paying 5%.

• Your 3% bond is now less attractive
• If you wanted to sell it, you'd have to lower its price
• Someone would only buy your "worse" 3% bond if it cost less than $1,000

How This Relates to the Stock Market

• When the economy looks bad, central banks often lower interest rates
• Lower interest rates make existing bonds worth more
• Meanwhile, stocks might be dropping because of economic worries
• So your bonds go up in value when your stocks go down

This is why bonds have traditionally been seen as a "safety net" in a portfolio - when stocks have bad years, bonds often have good years, which helps balance things out. Does that make more sense now?

Yes, that's an excellent way to think about it! Your analogy of a "money making machine" is spot-on. Let me expand on your analogy:

1. When you buy a bond, you're buying a machine that produces a fixed amount of money (the interest payments) at regular intervals.
2. If you buy a machine that produces $30 per year (a 3% bond on $1,000), that's what you'll get until the bond matures.
3. If later, new machines come out that produce $50 per year (5% bonds) for the same initial cost, your $30 machine becomes less valuable.
4. If you wanted to sell your $30 machine when $50 machines are available, you'd need to discount it. Why would someone pay full price for your $30 machine when they could get a $50 machine for the same price?
5. Conversely, if newer machines only produce $20 per year (2% bonds), your $30 machine becomes more valuable, and you could sell it at a premium.

This is exactly why bond prices move inversely to interest rates. And it's also why bonds can help during stock market downturns - when the economy slows, central banks often lower interest rates to stimulate growth, which makes existing bonds more valuable (like your $30 machine when only $20 machines are being sold new).

For most bonds, the interest payments actually stay the same dollar amount throughout the life of the bond. This is called a "fixed-rate" bond, which is the most common type. Here's how it typically works: When you buy a bond with a "face value" of $1,000 and a "coupon rate" of 5%, you'll receive $50 per year in interest payments. These payments are usually made semi-annually, so you'd get $25 every six months. The dollar amount ($50 per year) stays constant until the bond matures. When the bond matures, you get your original $1,000 back.

You've got it exactly right. There are indeed two main ways investors use bonds, Income Strategy and Capital Appreciation Strategy. The second strategy is essentially speculating on interest rate movements.

Pricing bonds does involve some calculation, but it follows a standard formula. The price of a bond is the present value of all its future cash flows: periodic interest payments; return of principal at maturity. The key factor in this calculation is the "discount rate" - which is essentially the current market interest rate for similar bonds.

Let's use a simple example, a 3-year bond with a face value of $1,000 and 5% coupon rate (pays $50 per year). Suppose current market interest rate for similar bonds is 4%.

Since your bond pays more than the current rate (5% vs 4%), it would sell at a premium above $1,000.

If market rates were 6%, your 5% bond would sell at a discount below $1,000.

From the article, we can see:

1. Treasury yields (the interest rates on US government bonds) have risen significantly - the 10-year yield went from about 3.9% to 4.5%, and the 30-year briefly exceeded 5%.
2. This rise occurred after Trump implemented high tariffs, particularly on China.
3. Initially after the tariff announcement, bond yields actually went down (bond prices went up) as investors sought safety while stocks fell - this is the traditional "negative correlation" we discussed earlier.
4. But now yields are rising (meaning bond prices are falling), which may indicate investors are becoming concerned about:
• Increased inflation from tariffs (which generally hurts bonds)
• Higher government deficits (more borrowing needed)
• Potential economic instability
5. The article suggests that Treasuries might be losing their "safe-haven status," which would be significant because US government bonds have traditionally been considered among the safest investments in the world.

What this means in our earlier terms: The "money-making machines" (bonds) that the US government is selling now need to offer higher returns (yields) to attract buyers, suggesting investors see them as riskier than before.

You've hit on an important distinction! When the article says "bond yields are rising (meaning bond prices are falling)" it's referring to bonds that are already trading in the secondary market. Let me clarify:

1. For **existing bonds** that were previously issued:
• If you owned a bond issued when yields were 3%, and now similar new bonds are paying 4.5%, your 3% bond's price would fall in the secondary market.
• But if you owned a bond issued when yields were 5%, and now similar new bonds are paying 4.5%, your 5% bond's price would actually increase in value.
2. The direction of price change depends on how your bond's interest rate compares to current market rates:
• If your bond pays more than current rates → your bond price rises
• If your bond pays less than current rates → your bond price falls

So yes, if you had a bond from a time when yields were even higher than today's rising rates (say, 6%), its price would not go down - it would actually go up, since it's paying more interest than newly issued bonds.

Excellent question that gets to the heart of day-to-day bond pricing! Yes, the price of your 6% bond would indeed change with daily market movements, but less dramatically than you might think. Let me explain:

1. Let's say yesterday, when market yields were 3%, your 6% bond was trading at a significant premium (let's say $1,200 for a $1,000 face value bond) because it paid double the current rate.
2. Today, when market yields rise to 5%, your 6% bond is still paying more than the market rate, but the advantage is smaller (6% vs 5% instead of 6% vs 3%).
3. As a result, your bond's price would decrease somewhat from yesterday's price (maybe to $1,050), but it would still be above face value because it still pays more than current rates.

So in this scenario:

• Your 6% bond was worth $1,200 when market rates were 3%
• Your 6% bond is worth $1,050 when market rates rise to 5%
• This is a price decrease from yesterday, but still above face value

The key insight is that bond prices move continuously with market rates, and the price is always relative to current rates, not to historical rates. The price yesterday already accounted for the 3% market rate, and today's price will account for the new 5% market rate. This is why bond investors closely watch interest rate movements - even if you have a higher-yielding bond, rising rates can still reduce its market value (though less severely than for lower-yielding bonds).

The yield on bonds is primarily determined by market forces—not by any single entity "setting" it. Here's how it works:

1. For newly issued bonds:
• The government or corporation issuing the bond sets the initial "coupon rate" (the fixed interest payment)
• But the market immediately begins trading these bonds, potentially at prices above or below their face value
• This market trading establishes the actual "yield" (return on investment (ROI))
2. For existing bonds trading in the secondary market
• Yields are determined entirely by supply and demand among buyers and sellers
• When there are more sellers than buyers, prices fall and yields rise
• When there are more buyers than sellers, prices rise and yields fall
3. What influences these market forces?
• Inflation expectations (higher inflation → higher yields demanded)
• Economic growth outlook
• Federal Reserve policy
• Government borrowing needs
• Global investment flows
• Risk perception

In the article you shared, Treasury yields were rising because investors were selling US government bonds, possibly due to concerns about inflation from tariffs or increased government borrowing needs. As investors sold these bonds, their prices dropped, which automatically increased their yields.

The Federal Reserve can influence yields indirectly by setting short-term interest rates and through bond-buying programs, but even the Fed cannot directly control long-term Treasury yields—they're ultimately determined by global market participants voting with their money.

You're absolutely right—yield is not the same as the stream of interest payments. Let me clarify:

1. **Interest Payment (Coupon)**: This is the fixed dollar amount paid by the bond issuer. For a $1,000 bond with a 4% coupon rate, you receive $40 per year regardless of what happens in the market.
2. **Yield**: This is your actual return on investment based on what you paid for the bond. It takes into account both:
• The fixed interest payments you receive
• The price you paid for the bond

For example:

• If you buy a $1,000 face value bond with a 4% coupon ($40/year) for exactly $1,000, your yield is 4%
• If you buy that same bond for $900, your yield is higher (about 4.44%) because you're getting $40/year on a $900 investment
• If you buy it for $1,100, your yield is lower (about 3.64%) because you're getting $40/year on a $1,100 investment

This a key insight about the bond market. Multiple bonds with different coupon rates can trade simultaneously because their prices adjust to align their yields with current market conditions. Here's how it works:

1. Let's say the "fair market yield" for a 10-year government bond is currently 4.5%
2. In the market, there might be:
• An older bond with a 6% coupon trading at a premium (above face value)
• A newer bond with a 4% coupon trading at a discount (below face value)
• A recently issued bond with a 4.5% coupon trading at face value
3. The prices of all these bonds adjust so that buyers get roughly the same yield (4.5%) regardless of which one they purchase

This is why the bond market can have hundreds of different securities with varying coupon rates all trading at once. Their prices adjust to equalize yields based on:

• Time to maturity
• Credit quality
• Current market conditions

It's also why you'll often see bonds referred to by both their coupon rate and their yield-to-maturity. The first tells you the fixed payment amount, while the second tells you the actual return based on current market price.

This flexible pricing mechanism is what makes the secondary bond market so liquid and efficient.

Right! The issuer (government or corporation) is strongly motivated to set the coupon rate very close to current market yields for several important reasons:

1. Pricing at Face Value: As you noted, setting the coupon at current market rates means the bond will sell at or very near face value. This makes pricing, accounting, and marketing much cleaner.
2. Maximizing Proceeds: If they set the coupon too low, investors would only buy at a discount, meaning the issuer receives less money than the face value of the debt they're taking on.
3. Minimizing Interest Costs: If they set the coupon too high, they'd be paying more interest than necessary for years or decades, which is inefficient and wastes money.
4. Market Signal: Setting an appropriate coupon shows the issuer understands market conditions and is a responsible borrower.

When major issuers like the U.S. Treasury sell new bonds, they typically use auctions where market participants bid on the bonds, which helps determine the appropriate yield. The Treasury then sets coupons on new issues to match market conditions as closely as possible.

For corporate bonds, investment banks typically advise issuers on the appropriate coupon rate based on current market conditions and the company's credit rating.