The Fall of the Bond Markets
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by: Mikahamilton
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Word Count: 560
The current question that is being asked in the stock is why is the bond market selling off. While there is a number of excuses there are real reasons this is occurring. First and foremost there are more seller than buyers.
Most financial professions over look the simple and straight forward answer. They often focus on why, because they feeling knowing why will help them predict the future activity in both bond and the stock markets. Beyond why, it is more important to know what is falling and what is rising. By knowing both of those this things you can take action and avoid severe financial lost.
Bond markets also do not have safety features which help avoid large sell offs in the marker. This is because the action of the bond market is extremely sharp and far more volatile than the the stock market. There is nothing worse then being a bond holder in a decreasing market. Bond statements can make your stomach turn when you realize, in text, that you are loosing money by the second.
If your first sign of a decreasing bond market is your statement you are probably working with a financial advisor that is inexperienced. When rates rise it is the utility companies, electric and gas, that get effected first. This type of stock will offer a similar pay out to bond yields. When these yields increase the pay off yields can no compete with rising rates, and wave of selling begins. When there is even a rumor of inflation bonds prices get smashed. Due to the recent new coverage of the price of gold and oil the perfect bond market continues to grow.
Individual bonds are influenced by two main components. These components are credit risk and interest rate risk. Bonds are held by company's and governments. When their credit rating is lowered their bond prices will significantly decrease. This is because there is more risk to the company that issued the bond will default. Usually this does not influence the whole bond market. However, when this situation is happening often and to a number of companies it would cause the current decline in bonds.
There are also other reasons that bond prices decrease. The price per share of the stock and mutual fund companies do fall. This is because a great deal of their profits from from the trading of bonds. Many insurances companies invest a good bit of their capital in bonds which is also affects as the prices for bonds decreases.
Most businesses and lending companies depend on interest rates and can be affected by the dips in bond prices. The important questions here are how will lending companies, and mortgage business continue to be successful as interest rates continue to sore? How will high rates affect the repayment of loans already made?
Most investors do not realize that bond markets are not like the stock market. Bonds in most countries are decentralized and there are absolutely no common exchanges. These is because bond issues are always different, and offer a variety of securities for a longer period of time. It is usually the bank in America which make the markets but remember they have no rules which govern if and when they buy, sell, or stop they participation in the bond market.
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