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Comment by ams6110 | Hacker News Reader

Bond yields and prices are inversely related.

Prices fall, yields rise.

I understand that. However what I don't understand is how the price of the treasury bond falls when there exists a buyer in the market that has an insatiable appetite for treasuries and a Scrooge McDuck sized wallet(The Fed). In economic jargon it would mean we currently have perfectly elastic demand for short term treasury bonds.

http://www.bloomberg.com/news/articles/2015-08-20/citi-the-m...

http://www.bloomberg.com/news/articles/2015-08-25/citi-the-f...

Fed is sending mixed signals. But recent articles I've seen imply that the Fed is going to be raising rates.

Ever do the jiggle with another person walking in the opposite direction? China & Fed past couple weeks.

Short term rates are directly set by The Fed. (Notice I said "rates" not "bonds". In the jargon "Bonds" have terms of over a year. Bonds are not controlled directly by The Fed - only very short-term rates (typically just a few days).)

Long-term rates (i.e. Bond yields) are set by the market in which the The Fed is a major participant but not big enough to completely control the market. This was greatly expanded under the 3 quantitative easing programs but the last of these ended almost a year ago.

Also keep in mind that the US bond market is huge - around 40 trillion dollars - with treasuries only about 1/3 of the total. Even after all the extraordinary intervention by The Fed they hold around 10% of that total. China holds less than The Fed and much of that is not is US dollar bonds.

Why the hell is this getting downvoted?

Are basic bonds beyond the grasp of this forum? High yields are low prices for the bond holders. So when people sell bonds, the price drops, which causes the yield to rise.

ams6110 is fully correct here and is stating simple facts of the bond market.

Because it's clear the person he's responding to understood that relationship. If he'd bothered to read all four sentences, it's clear he meant he wasn't sure why yields would rise if the Fed would react by buying bonds.

Perhaps it's getting downvoted because it's irrelevant to JamesBarney's point. The Fed (normally) sets (very) short-term rates; the market sets longer rates. But the Fed also can to some degree set longer rates by QE. And, in fact, the Fed can print more money than China can sell dollar-denominated bonds, and therefore the Fed can win the battle - if they want to badly enough.

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