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Practical Implications of Bond Spot Rates

If these questions sound naïve to you, please excuse me.

In the real world,

1. If the bond spot and the bond forward rates are declining, is it good or is it bad?

2. If bond prices are increasing, what is the significance of such a situation?

3. If bond prices are decreasing, what is the significance of such a situation?

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avmachado wrote:
If these questions sound naïve to you, please excuse me.

In the real world,

1. If the bond spot and the bond forward rates are declining, is it good or is it bad?

Good or bad in what sense?

And to whom?

If you own floating-rate bonds, it’s bad, as you’ll likely receive less interest in the future.

If you’ve issued floating-rate bonds, it’s good, as you’ll likely have to pay less interest in the future.

If you own fixed-rate bonds, it’s good, as the value of your portfolio will likely increase.

If you’ve issued fixed-rate bonds, it’s bad, as the (market) value of your liabilities will likely increase.

avmachado wrote:
2. If bond prices are increasing, what is the significance of such a situation?

Interest rates are falling.

avmachado wrote:
3. If bond prices are decreasing, what is the significance of such a situation?

Interest rates are rising.

Simplify the complicated side; don't complify the simplicated side.

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Bond prices (fixed rate bond) and interest rates are inversely related. For a trader who wishes to sell bonds, a downward sloping yield curve is good.