If the Treasury issues an unusually large amount of bonds in the primary market, it places ____ pressure on bond prices and ____ pressure on yields to be earned by investors that purchase bonds and plan to hold them to maturity.

Question

Quizplus · Accepted Answer

When the Treasury issues a large amount of bonds, it increases the supply of bonds in the market, which typically leads to a decrease in bond prices (downward pressure on prices). As bond prices fall, the yields (which move inversely to prices) increase, meaning there is upward pressure on yields for investors planning to hold the bonds to maturity.

If the Treasury Issues an Unusually Large Amount of Bonds