Australian Bond Exchange

The price of bonds are impacted by various factors. Some are due to the economic and market conditions, and some that are related to the bond and issuer.

Investors Interest: During economic uncertainty, some investors may reduce their investment in equities and increase their focus on safer income style investments like bonds. This will increase demand and raise the price.

Interest rate: Changes  to the interest rates alter the return relative to other investments. When interest rates are lower than a bond’s return, increased demand may raise the price. But when interest rates rise, existing bonds become less popular and their price decreases. However, most bonds never get sold again and held to maturity and repaid at par.

Length: The length of the bond also impacts the price, as investors typically want to be compensated for the risk associated with investing in longer-dated securities.

Liquidity: The easier a bond is to buy or sell, the more likely they are worth more in the market.

Credit Risk: The issuer of the bond comes with some amount of credit risk, or risk that the issuer is unable to repay the loan. That risk can change during the length of the bond.

Ranking: Finally each bond comes with a ranking based on the issuer’s capital structure in case the company goes into administration or liquidation. The lower the ranking the higher the coupon rate needed to compensate for that added risk.

If you’d like to know more about bonds and how they work in the market, you can find the full details in our short introduction to understanding bonds document.