If there is excess supply of anything and low demand it can mean that the price of a bond be very high as supplier are supplying more and investors in demanding less. If price is high then the interest on the bond must be less. And because of this supplier will have to offer more interest to attract investors thus widening the spread and falling the price of the bond.
There is an inverse relationship between bond price and interest rate.
Now given the situation in the question Demand is low, basic reason as to why demand will be low is when the price of something is high in our case bonds. Supply is high basic reason is supplier will supply more when prices are high so both these justify a high price. Now because of that high price interest is low inverse relation. Here interest rate is benchmark + spread.
Now to bring the situation in equilibrium price should fall a bit resulting in widening of the spread thus interest rate rises and price falls.
Your observation is correct yield was low that’s why that demand and supply situation occurred but question asks about the effect i.e what will this lead to.
If there is excess supply of anything and low demand it can mean that the price of a bond be very high as supplier are supplying more and investors in demanding less. If price is high then the interest on the bond must be less. And because of this supplier will have to offer more interest to attract investors thus widening the spread and falling the price of the bond.
Bro didn’t get it. If low demand and heavy supply then yield be low.
There is an inverse relationship between bond price and interest rate.
Now given the situation in the question Demand is low, basic reason as to why demand will be low is when the price of something is high in our case bonds. Supply is high basic reason is supplier will supply more when prices are high so both these justify a high price. Now because of that high price interest is low inverse relation. Here interest rate is benchmark + spread.
Now to bring the situation in equilibrium price should fall a bit resulting in widening of the spread thus interest rate rises and price falls.
Your observation is correct yield was low that’s why that demand and supply situation occurred but question asks about the effect i.e what will this lead to.