Giles Coghlan LLB, Lth, MA
Financial Source
The basics of what a bond is
Think of a bond simply as a type of loan. It is a loan taken out by Governments and companies. When Governments and very large companies want to borrow money they can’t easily go to a bank because of the huge amounts of money involved. So, a bond is a mechanism by which a Government or large corporation borrows money for their needs. The bond is issued for a set period of time. Bonds can be purchased for different lengths of time from short-term, medium-term, and long-term bonds. Short-term bonds are only for a year or two, medium-term bonds are up to 10 years, and long-term bonds are generally 10 years or longer. These bonds have a coupon or yield rate.
Understanding what a yield is on a bond
As an incentive to loan money to the Government or a large company the bond has a yield. The yield is an agreed interest payment on the value of the loan. So, for example, say you purchased a UK bond for £1000 with a yield of 5%, referred to as a coupon, you would receive £50 for each year you held the bond. Then, when the bond expires, you would receive back the original value you purchased the bond for. So, to be clear, the graph below shows a ‘yield curve’. The black dots on the chart show the ‘yields or coupons’ for each bond. The 3YR bond is showing a yield just above 1%. The 7YR bond is showing a yield of just above 2% and the 30YR bond has a yield of just over 3%. The dots are joined together and that creates what is known as the ‘yield curve’.
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Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Japanese Yen adds to strong gains and drags USD/JPY to 155.00 amid hawkish BoJ bets
The Japanese Yen extends its steady intraday ascent through the Asian session on Monday, dragging the USD/JPY pair to the 155.00 psychological mark in the last hour. Against the backdrop of the recent shift in rhetoric from Bank of Japan Governor Kazuo Ueda, an improvement in business confidence reaffirms market bets for an imminent rate hike this week.
Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Gold stuck around $4,300 as markets turn cautious
Gold loses its bullish momentum and retreats below $4,350 after testing this level earlier on Monday. XAU/USD, however, stays in positive territory as the US Dollar remains on the back foot on growing expectations for a dovish Fed policy outlook next year.
Solana consolidates as spot ETF inflows near $1 billion signal institutional dip-buying
Solana price hovers above $131 at the time of writing on Monday, nearing the upper boundary of a falling wedge pattern, awaiting a decisive breakout. On the institutional side, demand for spot Solana Exchange-Traded Funds remained firm, pushing total assets under management to nearly $1 billion since launch.
Big week ends with big doubts
The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.
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