How is the price determined in the debt markets?
The price of a bond in the markets is determined by the forces of demand and supply, as is the case in any market. The price of a bond in the marketplace also depends on a number of other factors and will fluctuate according to changes in • Economic conditions • General money market conditions including the state of money supply in the economy • Interest rates prevalent in the market and the rates of new issues • Future Interest Rate Expectations • Credit quality of the issuerThere is however, a theoretical underpinning to the determination of the price of the bond in the market based on the measure of the yield of the security.
