alt Hacker NewsSo 9% is the yield and people demanding 15% for new bonds instead of the previous 9% means they lack confidence you'll be around to pay back the original principle?
Are you saying there are existing bonds at 9% being sold for some amount of money (possibly even less than the original principle?)
How does selling the $1k bond at $800 translate into 15%? The bond was originally worth $1k+$45*10=$1450, now $45*9 ($1405?), so if you buy it for $800 that's approximately 85% of its original value ($800+(9*$45)/$1405) and thus a 15% decrease? How does that relate to the original 9%?
Is this about what existing bonds are being sold for or new bonds?
Presumably a us treasury bond yield is basically the same as inflation?
> Are you saying there are existing bonds at 9% being sold for some amount of money (possibly even less than the original principle?) ... Is this about what existing bonds are being sold for or new bonds?
The bonds were issued earlier this year. Their sale is a loss for someone, and NOT a small one.
> How does selling the $1k bond at $800 translate into 15%? 1000 5 year at 9 percent 5x90(450) + 1000 back.
If you need to dump it for 800, the bond still pays out 1000 in the end, The issuer still pays out 5x90(450). The 200 bucks I pick up at the end gets spread out over the 5 years so it looks like 5x130 (650+800).
That would be 16 percent, but all the numbers for the sake of sanity got rounded from their real ones. 9.xx rate, 8xx resale price, and 14.9 (closing on 15) rate.
It gets calculated that way because if you need to sell more new debt it only makes sense to know how to price it.
> Presumably a us treasury bond yield is basically the same as inflation?
Sometimes, often not. But Treasury Bonds have quite a few advantages. No state tax on the interest payments. They are almost as good as cash, so you can borrow against them at a pretty good rate (Better than a HELOC and way better than a credit card). Lots of institutions will give you a line of credit for up to 90 percent of the value of the bond. You can also borrow against them for margin trading (60percent? better than stocks) -