馃攳
Why Bond Yields Are a Key Economic Barometer | WSJ - YouTube
Channel: unknown
[0]
- [Presenter] Few things in the economy
[2]
are more closely watched than bond yields.
[5]
- There are forces in
play that merit watching.
[8]
Some commodity prices
[9]
and 10-year treasury yields have climbed.
[11]
- [Presenter] That's the president of
[12]
The Federal Reserve of Atlanta last March
[15]
speaking about how The
Fed gauges inflation
[18]
and why it's keeping a close
eye on certain bond yields.
[22]
US government bond yields are
a barometer for the economy,
[25]
but they're also more than that.
[27]
- US government bond yields
are extremely important
[30]
to the US and even in the global economy.
[32]
Bond yields affect everything
from the cost of a mortgage
[37]
to the cost of borrowing for businesses.
[39]
If you're borrowing money,
[41]
that's gonna be determined
to a large extent
[43]
by US government bond yields.
[46]
- [Presenter] And changes
in yields can impact you.
[48]
Here's how bond yields work
[50]
and why they're so crucial to the economy.
[52]
(bright music)
[57]
When we talk about a bond yield,
[58]
we're typically talking
about the annualized return
[61]
an investor earns by holding a
bond until its maturity date.
[65]
Let's break this down.
[66]
A bond is a contract with
features that are set
[69]
from the start.
[70]
There's the maturity date,
[71]
which refers to the
length of the bond's life.
[73]
This is generally two to 30 years.
[76]
Bonds that mature between two and 10 years
[78]
are also called notes.
[80]
Then there's it's face
value, which is the amount
[83]
the bond is worth when it's first created
[85]
and the amount it is guaranteed
to pay on the maturity date.
[88]
There's also the annual interest rate,
[90]
otherwise known as the coupon rate.
[92]
This is the fixed amount
a bond pays each year
[95]
up to its maturity date.
[96]
So say an investor buys a
new 10-year treasury note
[100]
with a face value of $1,000
and a coupon or yield of 4%.
[105]
Every year, the investor will receive $40
[109]
and on the 10th year, she'll
get back the original $1,000
[112]
she paid for the bond.
[114]
But here's the thing, as
soon as she buys that bond,
[117]
she can sell it to other investors
[119]
and when she does certain
features of the bond
[122]
are subject to change.
[124]
If the economy is doing well,
interest rates may go up,
[127]
which means new bonds will
be issued at a higher yield,
[130]
bringing down the value of existing bonds.
[133]
Say a new batch of 10 year
treasuries pay a yield of 5%.
[137]
Suddenly this bond is less
attractive to investors
[141]
and the price has dropped.
[142]
When the price goes
down, the yield goes up
[145]
and when interest rates go down,
[146]
this same dynamic happens in reverse.
[149]
The inverse relationship
between the price of a bond
[152]
and it's yield is key to understanding
[154]
why investors care so
much about bond yields
[157]
and why you sometimes
see yields and stocks
[160]
both going up at the same time.
[162]
- Investors generally like bonds
[164]
because they are a safe investment.
[166]
The problem is that that
return is gonna be often lower,
[169]
much lower than stocks.
[171]
- [Presenter] Sam Goldfarb
covers changes in bond yields
[173]
and how they're connected
to financial markets
[175]
and the economy.
[177]
- If investors are
confident about the economy,
[179]
they might not be satisfied
with the small return
[182]
they can get from US government bonds.
[184]
They might choose to buy stocks instead.
[186]
- [Presenter] But climbing
treasury yields also signal
[189]
that borrowing is getting more expensive.
[191]
- It's basically a proxy for
longer-term interest rates.
[195]
If you want to get a
rough sense of, you know,
[198]
where your mortgage
rates are gonna be going,
[200]
you might look at the 10-year
treasury note and it's yield.
[203]
- [Presenter] Bond yields
aren't just watched
[204]
by economists and investors.
[206]
The Federal reserve keeps a
close eye on them as well.
[209]
And they're not just watching.
[211]
Bond yields are a key
part of monetary policy
[214]
that The Fed uses to help
influence the economy.
[217]
- There has been an underlying sense
[219]
of an improved economic outlook,
and that has to be part of
[222]
why rates would move back up from
[224]
the extraordinarily low
levels they were at.
[227]
- [Presenter] That's the
chairman of The Federal reserve
[229]
in March, 2021, talking
about the rise in bond yields
[232]
during the economic crisis.
[234]
In 2020, The Fed had slashed
short-term interest rates
[237]
at controls to zero in an
effort to bolster the economy
[240]
and encourage spending.
[242]
And bond yields, which
are heavily influenced by
[244]
the outlook of short-term interest rates
[246]
also fell to record lows.
[249]
Two years later, much of
the economy has rebounded.
[252]
- The economy has rapidly
gained strength despite
[255]
the ongoing pandemic, giving
rise to persistent supply
[258]
and demand imbalances and bottlenecks
[261]
and to elevated inflation.
[263]
- [Presenter] Last
December inflation rose 7%
[266]
from a year earlier.
[267]
The fastest pace since 1982.
[270]
This reflected rapidly rising prices
[272]
on everything from houses to groceries.
[274]
And when The Fed wants to
restrain an overheated economy,
[278]
it raises short-term interest rates.
[280]
And when interest rates rise,
bond yields go up as well.
[284]
- If inflation is uncomfortably high,
[286]
people don't like that.
[287]
The Fed has a goal of
keeping prices stable
[291]
and so it'll try to cool the economy
[293]
by raising borrowing costs.
[296]
- [Presenter] Higher
interest rates can send up
[298]
the price of mortgages and other loans,
[300]
which will likely slow
down consumer spending.
[303]
This sounds like a bad
thing, but only to a point.
[306]
Higher bond yields can
help cool down the economy,
[309]
which should bring down
inflation in the longterm.
Most Recent Videos:
You can go back to the homepage right here: Homepage