Most important factor affecting treasury returns


The text explains how the level of interest rates has the most profound effect on the price of a bond.

Not sure what they mean by this, what else would affect the bond’s total return (and thus its price)? Looking at the bond pricing formula interest rates seem to be the only direct factor that would affect the bond’s value and total return.


The level of inflation, for example.

Credit risk, don’t forget the credit risk!

If your company is stressed, it does not matter if nominal rates are close to zero. Your bond is trash, so its price.

I think a better way to word this question is comparing the different yield curve movements and why the parallel change in the yield curve has the biggest effect on bond returns (vs. steepness and curvature adjustments)?

Is it because all the maturities move in the same direction under a parallel shift in the yield curve, and that would have a bigger effect on the bond’s price vs. steepness and curvature changes on the yield curve?

Sorry, just to be precise, I was talking about bonds in general in this comment

Exactly that :grin: