So I’m currently studying macroeconomics and I thought I understood the correlation between these 3 so I sent it to my teacher who confirmed that I was correct but then went to re-watch the recording about it and got confused when he said demand for bonds goes up then price of bonds go down and this interest rates decrease — w/ the assumption that real money demand > real money supply….
Here is the message I sent (prior to reviewing the above):
“I just wanted to verify, interest rates and bond prices are negatively correlated but the demand for bond increases and interest rates increase right?
Because if you presently have a bond and the interest rate increases, new bonds will have better rates and the demand for the currently held will decrease the price of said bond which means less $net. But the new bonds are attractive as interest rates likely won’t increase indefinitely and provide a higher yield and that yield increases when interest “inevitably” falls back down? So in a way people will generally look to buy bonds at what they assume is peak interest rates?”
Please help me understand the relation between bonds interest rates and real money supply and demand.