Bold yields seem to be 1-2%. I read that in the 60s and 70s, 10% bonds were quite common. What is the reason behind this change?
In: Economics
The short answer is: The more people buy bonds, the more the price goes up. The more the price goes up, the lower the yield is. When the stock market goes through a rough patch, people sell stock and buy bonds which are a much safer bet than questionable stock in a volatile market. This unfortunately also leads to stock value dropping, which only leads to more people selling stock and buying bonds.
Now, the good news is as stocks fall you’ll start seeing investors grabbing up stocks for pennies (not literally usually) at which point the market will be revitalized some with a surge of people selling bonds to get dirt cheap stocks. When this happens, yield will begin to rise again for bonds as there will be less people buying and more people selling.
This is an oversimplified explanation. Someone with an economics background could give a more in-depth explanation which would likely include other factors, but this is how it was explained to me and it makes sense to me.
Simplified. Bonds are loans. The yields on bonds tend to (not absolutely but more or less) follow interest rates. Interest rates (commercial rates) tend to follow the Fed rates. So in a low Fed rate regime (like now), the price of bonds tend to rise (ie lower yield) to track this.
Fed interest rates also tend to track inflation, ie Fed rates (nominal) are usually above the inflation rate. (eg if inflation is expected to be 3%, the Fed rate “should” be a few percent above that, say 5%)
In the 70’s and 80’s, inflation was very high (by current standards). So Fed rates were high and therefore commercial bonds had to offer even higher yields.
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