This is the VOA Special English Economics
Report.
Bonds have been in the news a lot in the last few weeks. Yields
on the ten-year United States Treasury note jumped to their highest level in
five years, before easing.
Bonds are debt owed by a government or a company. The holder of a bond is
paid interest until the date when the bond matures. Then the amount of the bond,
its face value, is paid back.
Investors can buy a new bond and keep it until it matures. Or they can buy
and sell existing bonds. The return on a bond is called the yield. Yields and
prices of existing bonds can change as investors trade them.
Yields fall when investors seek the security of bonds and are willing to pay
higher prices. Yields increase as prices fall.
This month, yields on the ten-year Treasury note rose above five percent for
the first time in close to a year. Higher yields raise the cost for individuals
and businesses to borrow money at interest rates that are tied to the ten-year
note.
Rising yields can also hurt stock prices. When yields rise, investors often
sell stocks in order to buy bonds. If investors can get high yields holding
low-risk bonds, or simply keeping money in the bank, they will do it. Yet
holding bonds can also have risks as values for new and existing bonds change in
the market.
Bond prices can also drop on signs of inflation. But inflation does not seem
to be a threat with the current softness in the American housing market. New
housing starts fell more than two percent in May.
Most experts believe the United States central bank will keep interest rates
unchanged when policy makers meet next week. But many investors are concerned
about pressure for higher interest rates in Europe and Asia.
Another influence on the bond market is the willingness of foreign countries
to buy United States government debt. In Asia there have been signs that some
countries that hold a lot of low-yield debt want greater returns on their
investments. China, for example, recently announced it will invest three billion
dollars in the Blackstone Group, the private-equity company in New York.
For much of the last year, bond yields have been inverted. Short-term debt
returned higher rates than long-term debt. In the past, an inverted yield curve
was thought to signal a possible recession. Now things are back to what is
considered "normal" with long-term debt paying higher yields.
And that's the VOA Special English Economics Report, written by Mario Ritter.
I'm Steve Ember.
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