A single discount rate applies to all as-yet-unearned interest payments. It works the other way, too.
Treasury bond prices and yields
Say prevailing rates fall from 2 percent to 1. Again, the 2-percent coupon falls to a 1.
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Let's get a calculator out. So 1, divided by is equal to 1.
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So you got 1. So let me put it this way. So this is Or another way to think about it is, you got a 5. You got your money back, plus you've got 5.
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So you could imagine, if all of a sudden many people want to buy this government security, and now the price goes up. What is the implicit yield that the person would now get on it?
Well, we get the calculator back out here. And I'm doing this to show you a point. When the price of the treasury security goes up, as happened in this case, the yield-- the interest-- that you're getting on your loan goes down.
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And so this is what people are talking about when they say if treasury prices go up then the yield goes down. So if there's more demand for treasuries the interest rate on treasuries will go down. In the next video we'll talk about how this might change for treasuries of different maturity dates.