Hi ,

Can smeone please expalin what happens to the fixed income market when there is a stimulative action like increase in money supply by the central bank or increase in government spending.

Short term interest rate declines. New bond issued will have lower coupon rates. Already issued bonds which have higher coupon rates, will rise in value.

Someone needs to verify what I said though. (A lot of time I am wrong in these forums)

Thanks Sachin .

I thought so . When there is a stimulative action by the government means rates are reduced and the bond prices rise. Please see Q 16 Rgd 16 CFAI