Sign-up for our 21 day free trial!

The contents on this page are a small sample of StockTradersHQ's member resources (FREE Trial!)

1. Our staff of professional technical traders analyze 1,000's of potential stocks every day to provide you with a list of stock picks with the greatest potential for explosive gains.

2. These stockpicks are traded with our real-time portfolio. Email alerts are sent for every entry and exit. Through the member-only website, you will have our support every step of the way.

3. Our subscription service provides all the resources, stock picks and tools an investor needs to make very profitable, consistent trades while maximizing gains and minimizing losses.


Bond Yields and Their Relation to Stock Markets

STHQ does not trade bonds but we feel that you should know how the bond markets work as they do relate to the stock market much like the price of oil effects the stock market.  Bond prices change on a daily basis just like publiclytraded securities.  In the bond world they talk about bonds as if everybody held them to maturity. The reality is that very few people ever hold them that long.  They recently brought back the 30 year bond; imagine holding a bond for 30 years Talk about a turtle of an investment. 

The conventional wisdom is that stocks are for younger people with risk tolerance because they have many years ahead of them.  Bonds are normally for older people who are entering retirement and want less risk. If this is the case who would buy the bonds When I am 62 I cannot see myself buying a 30 year bond and cashing it at age 92. 

The fact is bonds are used as a trading vehicle by the majority of bond market participants and are rarely held to maturity.  In this way bonds are much like stocks futures commodities and the foreign exchange. A bond does not have to be held to maturity. At any time a bond can be sold in the open market where the price can fluctuate sometimes dramatically.  The yield in the ten year bond is moving higher as mentioned in the commentary last night.  This will affect the stock market negatively if it continues. 

The Yield
The yield is a figure that shows the return you get on a bond. The simplest version of yield is calculated by the following formula: yield coupon amount/price. When you buy a bond at par yield is equal to the interest rate. When the price changes so does the yield. 

If you buy a bond at its $1000 par value with a 10% coupon the yield is 10%. But if the price goes down to $800 then the yield goes up to 12.5%. This happens because you are getting the same guaranteed $100 on an asset that is now worth $800. Conversely if the bond goes up in price to $1200 the yield shrinks to 8.33% ($100/$1200). 

Price and Yield Link
The yield's relationship with price can be summarized as follows: when price goes up yield goes down and vice versa.  In other words bond prices and their yields are inversely related. 

Here is the main point of confusion. How can high yields and high prices both be good when they cannot happen at the same time The answer depends on your point of view. If you are a bond buyer you want high yields. A buyer wants to pay $800 for the $1000 bond which gives the bond a high yield of 12.5%. On the other hand if you already own a bond you have locked in your interest rate so you hope the price of the bond goes up and profit even more when you sell the bond. 

Relationship with Stocks
The single most important factor that influences a bond more than any other is the level of prevailing interest rates in the economy. When interest rates rise the prices of bonds in the market fall thereby raising the yield of the older bonds and bringing them into line with the newer bonds being issued with a higher coupon.  This should result in a stock sell off because bonds are safer. If they are getting cheaper and yielding more the flight to safety is the common sense investment. 

Conversely when interest rates fall the prices of bonds rise thereby lowering the yield of the older bonds and bringing them into line with the newer bonds being issued with a lower coupon.  Investors then seek a better return elsewhere flocking to stocks and forcing stock prices higher. 

There is a relationship between the stock market and the bond market and knowing what is going on in the bond market could help you with your stock trading.

Copyright 2003-2006 StockTradersHQ.com is owned and operated by The Winners Edge a subsidary of DMC Systems LLC. All rights reserved.   This web site is optimized for Internet Explorer 5.0 or greater!DISCLAIMER  [Articles| Bulletins| Charts]

^GoTo Top^

Buy Outlet Canada Goose Jackets Parka Online Buy Replica Prada Clutch Bags Online Buy Replica Hermes Birkin Bags Online Buy Replica Celine Clutch Bags Online Buy Replica Christian Louboutin Shoes Heels Online prada bags replica celine bags replica christian louboutin shoes replica hermes birkin replica canada goose jackets outlet Replica Canada Goose Jackets Parkas Coats Vests Outlet Sale Replica Hermes Birkin Bags Kelly Handbags Replica Prada Clutch Bags Messenger Handbags Outlet Sale Replica Celine Luggage Tote Bags Replica Christian Louboutin Shoes Heels Sandals Pumps Outlet Sale Canada Goose Jackets Sale Prada Mini Luggage Tote Bags Sale Hermes Birkin & Kelly Bags Sale Celine Mini Luggage Tote Bags Sale Christian Louboutin Shoes Heels Sale Celine Bags Luggage Tote Mini Outlet Sale Prada Bags Clutches Purses Outlet Sale Canada Goose Jackets Outlet Sale Toronto Christian Louboutin Shoes Boots Outlet Sale Hermes Bags Birkin Purses Outlet Sale Canada Goose Jackets Canada Goose Jackets Outlet Authentic Canada Goose Outlet Buy Canada Goose Outlet canada goose outlet cheap canada goose sale Canada Goose Online Jackets Canada Goose Parkas Outlet Buy Canada Goose Parkas Cheap Canada Goose Jackets Canada Goose Outlet online Cheap Canada Goose Men Jackets canada goose cheap canada goose men outlet canada goose outlet canada goose jackets sale Official Canada Goose Jackets Men Online Shop Official Celine Bags Luggage Tote Mini Online Shop Official Prada Bags Luggage Tote Online Shop Official Hermes Bags Birkin 30Cm Online Shop Official Christian Louboutin Heels Shoes Online Shop Designer Christian Louboutin Shoes Heels Sale Outlet Designer Celine Bags Luggage Tote Sale Outlet Designer Hermes Bags Birkin Sale Outlet Designer Prada Bags Messenger Sale Outlet Designer Canada Goose Jackets Men Sale Outlet Cheap Canada Goose Parka Canada Goose Jackets Online Hermes Bags Birkin replica Prada Bags Clutch Sale Replica christian louboutin shoes outlet Canada Goose Men Jackets Outlet celine Luggage Tote bags Canada Goose Outlet Store canada goose outlet Hermes Birkin Handbags Outlet Sale Celine Handbags Trapeze Outlet Christian Louboutin Shoes Outlet Sale Prada Handbags Clutch Outlet Sale Canada Goose Parka Outlet Sale canada goose mens parkas Christian Louboutin Shoes Outlet Celine Micro Luggage Tote Bags Outlet Canada Goose Jackets Men & Women Outlet Prada Clutch Bags Outlet Hermes Birkin Bags 30Cm Outlet hermes replica handbags, celine tote bags, Designer Replica bags, canada goose outlet toronto, Canada Goose Clothing Outlet Uk Canada Goose outlet Canada Goose shell louis vuitton 2015 Moncler Bruxelles replica christian dior Discount Canada Goose moncler black friday 2016 Canada Goose sale outlet