So I'm learning about bonds and I'm confused as to why someone would buy a bond frmo a marketplace/someone else as opposed to buying it directly from the government/company. For example, I have had a 30-year bond 5 years which I bought at $1000 and 8% interest. The interest rate then drops to 6%. I go to sell my bond for some reason. Instead of my bond selling for $1000, it will sell for more due to the higher yield. This will push the current yield down.
How much will the current yield be pushed down? Well I have a suspicion that in order for the bond to look like a good deal for me to sell to someone, the market price of the bond has to increase until the current yield is at or almost at the same price for current interest rates. And to the lender looking to buy my bond, why would he buy a bond with such a high market price that the current yield is less than the 6% he could get from buying a new bond?
I just don't see the advantage in the lender's eyes of buying a bond previously owned by someone else when he can buy it directly from the government/company? It just doesn't seem like there's any advantage to either option.
The only difference I can think of is the fact that with bonds previously owned, the call date may be sooner around the corner, than on newly-issued bonds.
Submitted January 18, 2017 at 04:19PM by swissarm http://ift.tt/2joH3X9
