In any market, bonds play a major role in ensuring that the government has adequate money to raise the required capital. The bonds can be either of the long-term nature or short-term nature. One key function of any bond is to show any sign of economic growth in the country. Recently there has been a report that indicates how the United States government bond has faired over the year. Apart from showing the performance of the report, the knowledge on bond performance will be key in evaluating whether or not the economy is heading towards the right direction. For any investor, the economic indicator is key for him or her to make an informed decision on whether or not to continue investing in the bonds or not.
The report although showing a rise in the bond prices, the respective yields fell. The fall of the yields was from 2.959% to 2.990%. this yield represented a 10-year benchmark for the Treasury note. The growth experienced by the government bonds is more than what was earlier predicted. According to David Kruger, “U.S. government bonds advanced Friday after a report showed the economy grew more than forecast in the first quarter and as yields near multiyear highs continued to attract investors (Kruger).” Apart from the information on the rise of government bonds, the report also indicated that the gross domestic product in the United States grew by 2.5%. This was contrary to what was stated earlier of a growth of 2.6% in the economy. Apart from the 10-year treasury note, other securities also witnessed a significant growth rate. The GDP report has a number of effects as far as the United States market is concerned.
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As far as the United States GDP report is concerned, there are a number of indicators that can be learned from the report. One such indicator is that investors will have to pay more next time they are thinking of investing in the government bonds. The rise in government bond prices means that investors that when the investors want to have additional government bonds to their portfolio, they will have to part way with some small additional money for them to adequately finance their investments. Looking on the brighter side of this, the additional cost of the bond prices comes with a shortfall in terms of returns. From the report, it is clearly indicated that the government yields experienced some slight drop. Government yields basically refer to the return on investment on a government bond. The yields are normally expressed as an annual percentage (Jefferies). The decline in yields, however, can be interpreted in two ways.
One way of interpreting the decline in yield is that some investors will be discouraged by the decline. As investors witness a decline in what they can gain from the bonds, some can be forced to look for alternative means as what they are expecting in return is dropping. Another way of examining the drop in yields is that it represents a growth in the economy as indicated n the report. Increasing rise in the yields normally is not a good thing. A good example of this is the situation that occurred in Greece. Some few years back, the yield prices in Greece went up and passed the 7 % mark. The result of this was constant confrontations between the country, other European nations as well as IMF bondholders (Jefferies). These wrangles were as a result of the high-interest rates charged by Greece in order to finance their debts.
In summary, the recent GDP report had some vital information regarding the United States government bonds. Apart from indicating the rise in the prices of the government bonds, there was also a slight decline in the yields. The overall effect was a rise in the economy as well as additional investors attracted to the bonds.
