Demand For Bonds Falls In New York
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A Bond is a document with which one party promises to pay another within a specified amount of time. The term "demand" means that the principal plus any interest is due on demand by the bondholder rather than on a specific date. Bonds are used for many things, including borrowing money or guaranteeing payment of money. A bond can be given to secure performance of particular obligations, including the payment of money, or for purposes of indemnification. The validity of a "private" bond, payable upon demand, is determined by the same principles applicable to contracts generally. The purpose of the bond must not be contrary to public policy; it must be supported by a valuable consideration; and there must be a clear designation of the obligor and the obligee. A bond procured through fraud or duress may be unenforceable, but mistake on the part of the obligor as to the contents of a bond, or its legal effect, is not a defense to enforcement of the bond.
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In a recession, when income and wealth are falling, the demand for bonds falls, i.e. , the demand curve shifts to the left.Bonds have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall, and vice-versa. 1) When interest rates decrease, the demand curve for bonds shifts to the left. Put simply, when interest rates are rising, new bonds will pay investors higher interest rates than old ones, so old bonds tend to drop in price. Using the same reasoning, in a recession, when income and wealth are falling, the demand for bonds falls, and the demand curve shifts to the left. After fluctuating at the beginning of the year, bond prices have been hit especially hard in recent weeks, sending their yields sharply higher. A) increases; increases. How does changing interest rates affect bond yield and prices?
