Does central bank rate hike influence government bond yields?

I think government bond yields are based solely on the riskiness of the country defaulting. Is that true? If central bank announces a rate hike, does that influence direclty the government bond prices/yields? What about indirectly?

By | 2013-08-27T05:19:17+00:00 August 27th, 2013|Mortgages Home Loans Interest Rate|4 Comments

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4 Comments

  1. Anjaree August 27, 2013 at 6:34 AM - Reply

    There is a short term and long term rate. The long term rate is the bond rate.If the government has to finance the deficits more by selling securities to the FED,the rate will go down and vice versa.If the rate is going up, the bond price will go down.Lees debts,less QE, more growth.

  2. Mukesch Kaley August 27, 2013 at 6:25 AM - Reply

    bond yield is entirely different parameter from returns from a bond..yield takes care of diurnal variations and an yeild on a perticular day for an instrument could be drastically different from end returns or even returns after a while on selling. as such, the answer is affirmative.

  3. pata August 27, 2013 at 6:02 AM - Reply

    The government bond yields are based on the real interest rate, expected inflation, perceived risk of default, liquidity concerns, term structure, and other phenomena such as “flight to quality” (seen in 2008-2009).

    Since the central bank can control the real interest rate with a high degree of precision, it directly influences government bond yields. If you are talking about US Treasury yields, where the risk of default is zero and the market is exceptionally liquid, the central bank directly controls government bond yields.

  4. SDD August 27, 2013 at 5:55 AM - Reply

    The central bank is a buyer/seller of those bonds. The “rate hike: simple means they are selling more or buying fewer of them.

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