Understanding Bonds 101................from Rico

Generally people 'hear' about bond yields and/or bond prices, but don't understand what is actually being said to them from the TV. It's just comforting 'noise' affirming their normalcy bias that everything is OK (otherwise the announcer's voices wouldn't be calm, right?), and it's just a deluge of data that's too large to comprehend anyway (and today's S&P rose/fell, blah-blah-blah) and this is all just business as usual.

- Admit it, asking 'huh?' is like refusing to ask directions because that makes it look like you don't really 'know' where you are going. Bond markets (which dwarf all other markets...except derivatives, but that's for another time) are in the same category. Asking what does this bond stuff 'mean?' is like asking directions, it makes you seem like you don't really 'know' what's happening.

- That's the whole point. You're not supposed to 'know' what is happening. That's exactly why they tell you stuff, but no one ever bothers to tell you what it means.

 

Understanding Bonds. Bonds are IOU's on debt. It's very simple.

- Bond yields UP, bond prices DOWN.

- Bond yields DOWN, bond prices UP.

 

When you 'see' the yields on European bonds (national debt) going UP like they are on the attached chart, that means bond prices are collapsing. This again is very simple.

- This means serious PROBLEMS are at hand. [For Keynesians, read: This is NOT good. ]