Why do yields go up when the government buys bonds?
Government bond buying is actually intended to reduce yields. Yield is calculated by dividing interest payments on a security by the purchase price of that security. So if you paid $10 to purchase a bond that pays you $1 per year in interest, your yield would be 10% ($1 divided by $10). Yields can rise two ways. If interest payments go up, or if the purchase price goes down. Yields can fall in the opposite two ways. If interest payments fall or the purchase price rises. The theory is that if the government buys bonds, it increases demand for these securities. The purchase price should then rise. All that said, yields are rising despite the government`s buying of long bonds. Theory only gets you so far.
