The US Bond Market Explained.
You will hear many people in finance and in trading tell you that the bond market is the most important market to understand because it influences every other market in the world… particularly the US Bond market.
In this video I am going to try and explain what the Bond market is for anyone new to trading or still learning about the bond market and then I will give you a prediction of where I think the market is moving next.
All within 20 minutes because that’s the limit on TradingView videos.
I will try to keep the terminology as simple as possible and jargon free for people still learning about this market but if at all you want any further explanation on anything covered, simply drop a comment below and I will do my best to answer them all.
Basics
- Two main elements to the bond market…
1) Bond prices “Called a premium”, simply, this is the price you pay to buy a bond.
2) Bond Yields. These are how much interest you are paid on that bond and are described in percentage terms.
As with any asset price, the prices of bonds are largely determined by supply and demand forces.
Typically, investors buy more bonds (and demand goes up) when the economy is projected to perform badly because bonds are regarded as one of the safest assets in the market.
&
Investors sell more bonds when they expect the economy to do well because they want to use that money to buy riskier assets such as stocks that will provide better returns in the economic good times.
These two elements in bonds are INVERSELY CORRELATED.
So when the Bond price goes up, the yield on offer goes down.
&
when the bond prices go down, the yield goes up.
Finally the last basic point to explain for anyone new to trading or the bond market is that the duration of the bond is also important to consider when analysing the bond market.
The most common bond is the 10YR but there’s also 30YR bonds and 1YR bonds available and the duration of the bond is the amount of time that the “premium” is locked up for… after the duration the premium is then paid back to the investor.
Each of these bonds durations perform differently depending on investors sentiments.
So hopefully that has given a brief overview of what the bond market is and explained the basics of how it works.
In the video above I explain the next steps that the bond market may have including projection 10YR yields of 3% or more to come! And the potentially dangerous consequences that could have for markets.
