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

Question

Quizplus · Accepted Answer

When the Treasury issues an unusually large amount of bonds in the primary market, it increases the supply of bonds available for purchase, leading to downward pressure on bond prices. Conversely, when bond prices decrease, the yield to be earned by investors that plan to hold the bond to maturity increases, resulting in upward pressure on yields. Therefore, the correct answer is B, which indicates that there is downward pressure on bond prices and upward pressure on yields.

If the Treasury Issues an Unusually Large Amount of Bonds