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government bond

Government bonds are publicly traded: that means that their price is set by the market. If there are lots of buyers of US government bonds, then the price goes up. And when the price of a bond goes up, its “yield” goes down. For example, a bond is issued at $100 with a 5% coupon (meaning an investor that owns that bond gets paid $5 per year). If there are lots of buyers, the price of that bond might go up to $105 – but the coupon stays at 5$. That means that whoever buys the bond at $105 gets paid a “yield” of 4.76% (5/105). And that new “yield” is, effectively, the current interest rate of that bond.

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