Understanding The $38 Trillion Bond Market
October 2017
A bond is just like a mortgage there is a lender and the borrower. Bonds have a stated interest rate, i.e. 5%. The face value of the bond is usually issued in increments of $1,000. As the bonds trade the value of the bond will fluctuate but the interest rate will say the same. This means the effective rate of the interest on the bond will have to change. For example, if everybody is buying the bond, the effective rate will probably go down from 5%, and conversely if no one is buying the bond effective rate of the bond will have to increase above 5%.