I have difficulty wrapping my head around why an increase in new issues results in a decrease in relative yields. Can anyone provide an intuitive explanation?
yield is the cost of the company that issues the bond. yield is the benefit that investor gets.
if the demand of the bond is so high for the new issue, then company would decrease its cost, and lowering investor’s benefit.
Ok thanks, I thought of the relationship b/w supply/demand independently… I suppose notes are auctioned so an increase in issues implies high demand…if the notes are in high demand the issuing company can issue at a lower yield.
It also affirms the market’s view of the credit quality of the company. This reassurance is positive for the price (lower yields).
It also validate the prices of other securities trading in the secondary market…