reading the wall street journal credit markets column 638227

Reading the Wall Street Journal “Credit Markets” Column

Now that we have an understanding of how supply and demand determine prices and interest rates in the bond market, we can use our analysis to understand discussions about bond prices and interest rates appearing in the financial press. Every day, the Wall Street Journal reports on developments in the bond market on the previous business day in its “Credit Markets” column, an example of which is found in the Following the Financial News box on the next page. Let’s see how statements in the “Credit Markets” column can be explained using our supply and demand framework. The column featured in the Following the Financial News box begins by stating that Treasury prices soared as the euro continued its decline and investors expressed concerns about debt problems in Euro zone. This is exactly what our demand and supply analysis says should happen. The column describes the market as being very nervous and the increase in uncertainty about developments in Europe and elsewhere mean that U.S. Treasuries became less risky relative to foreign assets, which would cause the demand curve for Treasuries to shift to the right. The results would be an increase in the price of Treasury bonds, just as the column suggests.