What are some potential implications to the bond market during recession? Can you kindly expand your...

What are some potential implications to the bond market during recession? Can you kindly expand your answer? Thank you!

Expert Solution

Answer:
Potential implications of bond market during recession are as follows:

During recession investors tend to sell riskier bond holding to other safer securities so bond value of riskier bond will decrease during recession.
Amount of money infused in the debt market will also reduce, due to low volume bond prices tend to reduce further because of demand suppluy imbalance. More sellers than buyers.
Government may take aggressive policy of decreasing the interest rate during the period of recession to increase the demand which will cause cut in coupon payments of various bonds by the corporates which will decrease the bond value further.
During recession a common investors need money for his day to day needs as well as he wants it to be more secure, because during this period many companies default so people will start selling bond to sit on cash or to invest in Gold due to which price of bond further decreases.

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Rahul Sunny answered 2 months ago

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