Relationship between bond prices and interest rates | Finance & Capital Markets | Khan Academy
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- เผยแพร่เมื่อ 27 ก.ย. 2013
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Why bond prices move inversely to changes in interest rate. Created by Sal Khan.
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Finance and capital markets on Khan Academy: Both corporations and governments can borrow money by selling bonds. This tutorial explains how this works and how bond prices relate to interest rates. In general, understanding this not only helps you with your own investing, but gives you a lens on the entire global economy.
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Kahn helped me back in high school; now he’s helping me navigate the markets. Can’t get rid of this guy.
Haha, great comment!
Sameeeee. A big help in navigating and understanding the market concepts which I should have learned in school.
Hey I'm just curious, how has investing been going?
@@PunmasterSTP horrible lmao nassy falling 3% everyday
@@A2Cap By nassy do you mean Nasdaq? Yeah I agree things might not be the best right now. But just like you can sail into the wind, I would suppose that bear markets can present their own opportunities…
Thanks for explaining the SVB issue 9 years ago. Makes sense
Exactly why I came... So I could get a better understanding of what happened❤👍
hehe
SVB brought me here 😅
Hi, thank you so much for the video Sal!
I would just like to add on in case anyone was struggling to make sense of the inverse relationship between interest rates and bond prices like I did. You can think of it as the following scenarios:
1) If interest rates in general fall, the bond's interest rates become more attractive, so people will bid up the price of the bond.
2) Likewise, if interest rates rise, people will no longer prefer the lower fixed interest rate paid by a bond, and their price will fall.
Hope this helps :)
thanks!
Thank you
Still don't get it
This cleared it up for me. Thanks for the finishing touch kind sir!
Hi Derek,
Can you please explain what do you mean by interest rate here?
Older bond will trade-at-discount-to-par ( ie older bond price falls) , when interest rates rise (for newer bonds)
Older bond will trade-at-premium-to-par ( ie older bond price rises) , when interest rates fall (for newer bonds)
So hypothetically does that means that we should buy bonds when the interest rate is the highest as one can profit from rising bond price when interest rate comes down ?
@@kingwoo1900 Exactly. I think like in this way too
The Federal Reserve's intention to raise interest rates until inflation is under control is still viewed with skepticism by the markets, even if bond yields are rising while stock prices are falling. What is the best approach to profit from the current down market while I'm still considering whether to sell the $401,000 worth of stocks I own?
If the market has taught me anything, it's that it typically makes a comeback, but I can't seem to focus on the long term, particularly because crucial factors like my retirement and my reserve are having a devastating influence on inflation. As soon as is practical, I need a solution and a data trajectory that I can trust.
One of the primary reasons I utilize a portfolio coach to oversee my daily investing decisions is that their whole skill set is centered on trading long and short at the same time, utilizing profit-oriented techniques and minimizing risk as a hedge against unforeseen events.
@@alexanderjames3043 Due to the significant falls, I need advice on how to rebuild my portfolio and develop more successful tactics. Where can I find this teacher?
@@AnthonyHart34 In fact, I'm not sure whether I'm permitted to say this, but I'd suggest searching for "sharon lee casey" as she gained a lot of attention in 2020. She is both my coach and the manager of my portfolio.
@@alexanderjames3043 She has excellent credentials and an outstanding occupation. Hence, I swiftly copied Sharon's whole name and typed it into my browser. I'm curious to discover why she is so busy, and despite the fact that she has unquestionably good credentials, I nevertheless schedule a meeting with her.
I don't know why I go to school. Why is it so much easier for me to learn from Khan Academy? ?!?!
and free
He knows everything. Just love Khan Academy
Is this the smartest guy alive ? How does he know every concept
Julian Hilgemann textbooks + genetics + will
@Donald Borum is that hard
@@ITALIANO0110 obviously! Extremely difficult. Also, requires a lot of hard work.
@@DaBestAround sorry i meant MIT is it harder than other unis
He was a Portfolio Manager at a hedge fund
Great teacher, thank you for contributing !
Finally somebody's able to put it in language I understand. Thanks!
Best explanation available! Thanks a ton!
Thanks a lot for making this one! Just in time too, got stuck on my financing course and you pop up some videos.
Love it ! Finally now i get it ... also watched bonds explained . I have no finance education backgroud but i am now in the mortgage industry and i can definitely benefit from this !
I've slowly invested more into bond funds as central banks slowly cut interest rates since late 2018.
@@nagasako7 I came across your comment and was just curious. If I might ask, how has your investing been going?
amazingly clear explanation. Thanks so much
Thank you very much. This video helped me to get the understanding of Keynes' Speculative demand theory of money.
This was the best video that explains the relationship between Bond and interest rates in a simple term so that one can understand.❤
now the real question is where can i find that 15% coupon bond lol
ANGL junk bond etf
I would even take 10%
@@dantheman4011 I would even take 5% given that currently, the interest rate on 30 year US bond is 2.34% & 1.6% on a 10-year bond.
@@ronniebine1325 which barely covers inflation.
@@dantheman4011 Inflation will shoot up soon as theres no chance that FED can reduce it's balance sheet. Gold is on the way to shoot to the moon.
That was really useful thanks. I understood it before, but this was so clear and concrete.
Thank you so much! Was really helpful :)
Boom! Thanks. I now know more about economics than Janet Yellen!
I loved your explanation. This made sense to me.
Each time I see you, I get light from your eyes.
Very well explained, what could take someone hours in the library to understand, you do that in 13 minutes, thank you very much.
Quantitive easing makes sense now. Buying bonds increases their value thus bringing down the yield!
THANK YOU. It took me over a half dozen videos to find this one that makes sense of this insanity. It shows the relationship in real numbers.
Kahn is great and Sal is a good man
This is REALLY applying to what’s happing today. Glad it showed up on my TH-cam feed.
This explanation is a God sent explanation. Well done!
Exactly the kind of lesson I was looking for. Thank you.
Sal u are doing a great and appreciable job...
Thank you so much for the explanation! Really helped me!
Thanks for the great video and I'm glad you showed the math.
Simple and straightforward explanation, thanks.
Super clear simple explanation in the most profound way.
Perfect explanation! Thank you
Wonderful explanation. Thank you so much for this.
The best video you can find on TH-cam about the relationship between interest rates and bond prices.
Who’s here after the drop in the market despite Feds saying interest rates would stay low until 2023?
LOOOOOOOOOOOOOOOOL
Fed has a targeted interest rate and this is always in line with inflation. However, Fed cannot control the forces of demand and supply. Hence, real market activities would determine the actual interest rate.
Thank you... I came here because of SVB... And now I understand😁👍
Hands down the best explanation of bond price fluctuation with an excellent mathematical demonstration. Thank you so much.
Thank you so much!!!
Thanks for the video!
498K views and 2.2K likes? Why?
This is one of the simplest ways this particular subject could’ve been explained.
Because no fancy animations, no screaming face and capital letters in thumbnail, no click-bait.
The reason is that most people watch the videos through the KhanAcademy website in an embedded player where the like button and comments are not shown.
Because people are LAZYYYY haha I ALWAYS ALWAYSSSS Like a video if I gain value from it. It's the least I can do since I'm not paying for the information. Maybe it's the "TH-cam Creator" in me :)
@@5astelija75 RIGHT!!!!
hahaha
volume is too low
Brilliance man. Really thank you ❤️
This video is a gem!
Thanks Khan Academy! You saved my finance class :P
thank you, perfect!
If i have a teacher like you i never feel finance is difficult from nepal😭😭😭😭🇳🇵🇳🇵🇳🇵
thank you so much that was helpful
Thanks Sejal! That tought me in 12min. what would have taken hours to learn in finance textbook research.
If you're looking for his not math succinct explanation:
When the interest rate goes up, people expect more return from the bonds which don’t give more because they were issued at a lower interest rate time therefore their price go down (trades at a discount to par).
When the interest rates goes down, the bonds issued in the higher interest rate time yield above expectations to they go up in value (trading at a premium).
Khan academy is actually the goat. I’ve been using Khan for over 5 years now
thank you, very clear
Thank you so much Sir for this explanation. You are helping alot of people out here.
Thanks for the video. I believed that with interest rates going down it would want to drive bond holders from bonds and elsewhere due to the low yield, I guess it is true with bonds with variable rate.
His writing is so pretty 🤩 every symbol is perfect!
Sal, awesome video.
This was good. The examples were awesome. Thank you
My god... After hours and hours of reading my text book and beating myself in the face with my fist I get it. Wish I had watched this video first.
Finally got that from you !! thanks much
나도 미국에서 수년가 칸아카데미 이용했던 사람으로서 이 칸 선생님응 진짜 존경한다. 미국은 달라... 이분은 공짜 무료 로 이런거 갈키는데 거의 창시자임... 미국이어서 가능 한국에서는 절대 불가능... 대학교육만 봐도 미국대학 근처에 한국처럼 술집 번화가 자체가 생겨날수 없음 그냥 닥치고 아닥하고 공부 ... 기본적으로 전문대 강사라도 해도 미국에서의 교육에대한 자부심이 쩔고 .. 내대학의 경우도 통계교수가 얘기했던게 우리가 미국에서 티칭 스킬이 10위권이다 올해는 14위로 내려갔다 이러면서 점수를 안주려고 하지만 학점에 관계없이 어려워도 이런 교수들 만나 의미있는 교육 받고 공부했다는거에 자부심이 든다. 이 칸 선생님때문에 인도사람들이 더욱 친근해지고 조아졌었징 똑똑합니다 진짜 수학 25구구단이었던가 25진법인가 까지 외우는 나라. 한국은 진짜 달라져야돼 자기 밥그릇만 챙기면 더이상 미래가 없음. 공무원 마니 뽑지 말고 중소기업 마니 뽑아요
Huh. Good explanation. Definitely found that helpful.
Great Explaination! thank you
It's usefull and simple to understand. Thanks.
Please keep doing lessons like this ;)
Great video!
Thank you, super helpful!
Bond prices and interest rates? More like "Better and profound information that's great!" Thanks for everything you do Sal.
It helped sir.
I was stuck in economics for 3 constant days.
Thanks.
Very lucidly described.. thanks.
i am happy
Know what your thinking
Shambhu Neupane: Yes, anything which is not too out of my control I am happy with my knowing this is not a chance game like the stock market, or worse, an individual stock. When you touch it, especially a rising market, there is no guarantee that it will do what you desire. Bonds are not a "greedy" vehicle. These are a nexus to the sound rewards it provides.
Now that's a saver! Thank you 😘
This is perfect. Thanks!
What a brilliant way of explaining the present value of a bond using discounted cash flows, without even introducing it as an NPV of a bond. This inductive reasoning is brilliant.
PV of Zero Coupon Bonds= Bond's Price/(1+R) where R= Coupon Payments
PV of Normal Bond= Bond's Coupon payments/ (1+R)^t +Bond's Principal/ (1+R)^t
t= number of years
Every time the interest rate, or discount rates, increase, the price of a bond, or its present value decreases.
We also have to distinguish between:
Current Yield= Annual Coupon Payments/Current Market Price of a Bond
Yield to Maturity= [Cash-Flows + (F+P/Number of years to Maturity) / (F+P/2)
where F: Face Value of a bond
P= Market Price of a bond
When the credit issuers are solvent and there's no or every small change of default, then there bonds' yields are lower while their prices are higher. This is because they will most likely pay their debt obligations.
That's the reasons economically-weak countries like Greece, Spain, Portugal and Argentina offer very high yields on their bonds.
In other words - staking shitcoins
Beautiful!!🙌🏾
Finally my concepts are clear ✌️
Simple , and accurate
Beautiful explanation
Very good and easy explanation. Cheers.
love u khan... u r always awesome
Thank you so much:) I love that you have the subtitle in the video
Thank you for the video. It was easy to understand and informative. Thanks. 감사합니다!
A great explanation on the effect of interest rates on bond prices. I really needed this👏👏
Great video I finally get it thank you so much!
I am proudly saying Bangladeshi , Khan come from the same country.
Awesome video! Thank you!!!
Thank you sir!
Perfect. Thanks
Thank you very much, very helpful ❤️
Finally, I get it! Thanks!
Great explanation !
i need this now
Sick calculator. Nicely explained aswell.
people at Khan academy are such good teachers
Never thought Id watch another Khan Academy video again in my life.
You don't know what you are missing
I like the way you think, this makes a lot of sense to me
Amazingly well done.
Yes, it was amazing thanks!
Very well explained!
Great explanation. Thanks
thank you so much sir,good explanation that i ever seen before