Suppose the U.S.Treasury announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

Question

Quizplus · Accepted Answer

When new bonds are issued, it means there are more bonds available in the market. This increases supply, which puts downward pressure on bond prices. To attract buyers, interest rates will have to rise. Therefore, bond prices would decline, and interest rates would rise. Option (E) best describes this scenario.