The impact of a decrease in expected inflation in the bond market will have a relatively large effect on the prices of bonds prices because the bond demand curve:

Question

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A decrease in expected inflation makes bonds more attractive because the real value of the fixed payments they provide will be higher. This increases demand for bonds (shifting the demand curve right), but it also makes issuing new bonds less attractive for firms (since they will have to pay back a higher real value), leading to a decrease in supply (shifting the supply curve left). This combination of shifts increases bond prices.

The Impact of a Decrease in Expected Inflation in the Bond