Impact of Yield Increase on Bond Prices

Hard Fixed Income Securities Bond Markets

Analyzing the dynamics of bond markets is crucial for understanding how fixed income securities operate. Consider a scenario where the yield on 10-year Treasury bonds rises from 2.0% to 2.5%. Additionally, assume that inflation expectations remain stable throughout this period.

Given this information, which of the following statements accurately reflects the influence of the yield increase on bond prices and investor behavior in the bond market?

Bond prices will increase, leading investors to prefer longer-term bonds.

Bond prices will decrease, leading investors to seek higher yields in the equity markets.

Bond prices will remain unchanged as a result of the rise in yields.

Hint

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