Bond Prices vs Bond Yields
These terms are employed interchangeably a lot when discussing bonds, so it is important to spell out what they are to eradicate confusion. The bond price is the cost of the bond; that is what the bond buyer pays when buying the security. The bond yield, on the other hand, is the interest that the bondholder is given by the bond-issuer for the employment of his or her money.
It is important to remember, that the bond prices are negatively correlated with their yields, meaning; when one goes up, the other goes down; bond prices rise – yields go down, and vice versa.
Let’s discuss now the relationship between Bonds and Forex, and particularly how two specific properties of bonds influence the value of a currency. We’re going to talk about the Bond Yields and the Bond Spreads.
