Bonds are mortgage type instruments. The companies are borrowing money to help their business. The more trustworthy the borrower (The U.S. Government long the model for guaranteed repayment) the lower the interest rate demanded by the bond buyer.
High Yield bonds? Junk bonds. Less trustworthy borrowers. More chance of default.
Ever watched a see-saw? As one side goes up, the other side goes down. Put INTEREST RATE on one end and BOND PRICE on the other. If the going interest rate is 5%, and a bond sells for $100., when the interest rate goes to 6%, what would the bond sell for??
wekll regarding bonds i still dont understand, when feds raise itnerest rates the bond prices drop so it brings back the older bonds yield closer with the new? how is this? dont the new bonds also drop in price too? how do people make money off selling bonds at discount or premium? i dont intend to hold a bond till maturity. and regarding buying it cant you buy a bond at its 4th year of a 5 year bond if its discounted? can somebody help? this is confusing me!
so when you buy a bond which has a high yield this usually means the company wants more money to fund its whatever ?
