Comments on: Economics in plain English: Understanding Argentina’s budget woes http://welkerswikinomics.com/blog/2010/02/05/economics-in-plain-english-understanding-argentinas-budget-woes/ for students and teachers of Economics Wed, 23 May 2012 04:39:58 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Ben http://welkerswikinomics.com/blog/2010/02/05/economics-in-plain-english-understanding-argentinas-budget-woes/comment-page-1/#comment-10146 Ben Mon, 08 Feb 2010 22:32:03 +0000 http://welkerswikinomics.com/blog/?p=1518#comment-10146 Thanks Jason - excellent clarification of my pupil´s query who passes on a big thank you! Another not wholly unrelated query i get is also about bonds. Scenario - understood that bond prices and yields are inversely related. If a government offers 4.5% on a $10k gilt or treasury bill this should pay lender $450 per year. Now if in a time of recession, the government wants to increase it´s budget deficit and sells more bonds, this will have effect of lowering the price of the bonds (to say $9000) and pushing up yield to 5%. What actually happens when the bond matures? Even though the face value of the bond is $10k, the government sold it for $9k so it will only have to pay back $9k to the lender? Ben Thanks Jason – excellent clarification of my pupil´s query who passes on a big thank you!

Another not wholly unrelated query i get is also about bonds. Scenario – understood that bond prices and yields are inversely related. If a government offers 4.5% on a $10k gilt or treasury bill this should pay lender $450 per year. Now if in a time of recession, the government wants to increase it´s budget deficit and sells more bonds, this will have effect of lowering the price of the bonds (to say $9000) and pushing up yield to 5%. What actually happens when the bond matures? Even though the face value of the bond is $10k, the government sold it for $9k so it will only have to pay back $9k to the lender?

Ben

Like or Dislike: Thumb up 0 Thumb down 0

]]>