When stock market volatility is high, corporate bond yields tend to increase. What market forces cause...

When stock market volatility is high, corporate bond yields tend to increase. What market forces cause the increase in corporate bond yields under these conditions?

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Expert Solution

When there is a high level of stock market volatility, then corporate firms issue bonds to generate funds. It causes increase in the supply of bonds in the market. When number of bonds increases, then price of the bond decreases and yield rate increases. Hence, it is the increased supply level of bonds due to the stock market volatility, that leads to the decrease in the price of the bond and increase in the yield rate of the bonds. As a result, corporate bond yield increases.

Rahul Sunny answered 2 years ago

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