Fundamentals of Bonds: Prices, Yields, and Market Vocabulary

Apuntes

Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1 st Edition, © Pearson Education Limited 2010 Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1 st Edition, © Pearson Education Limited 2010 Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1 st Edition, © Pearson Education Limited 2010 Slide 15.2 • Default risk, the risk that the issuer of the bond will not pay • Maturity, the length of time over which the bond promises to make payments to the holder of the bond. Bonds of different maturities each have a price and an associated interest rate called the yield to maturity, or simply the yield. 15-1 Bond Prices and Bond Yields Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective, 1 st Edition, © Pearson Education Limited 2010 Slide 15.3 The relation between maturity and yield is called the yield curve, or the term structure of interest rates. 15-1 Bond Prices and Bond Yields (Continued) Figure 15.1 UK yield curves: June 2007 and May 2009 The yield curve, which was slightly downward-sloping in June 2007, was sharply upward-sloping in May 2009 Source: Bank of England Blanchard, Amighini and G...